Protecting American Homes from Hedge Funds Act
- Sponsor
- Rep. Smith, Adam [D-WA-9]
- Committees
- Financial Services Committee (primary)
- Last action
- Jul 13, 2026
Bottom line
The bill aims to curb large-scale institutional ownership of single-family homes through financial penalties and restrictions, thereby increasing housing affordability and accessibility for individual homebuyers.
What it actually does
This bill imposes new excise taxes on hedge funds and other large institutional investors that acquire single-family residences or fail to reduce their existing portfolios of such homes. It also eliminates certain tax deductions for these entities and prohibits federal mortgage assistance from Fannie Mae, Freddie Mac, and Ginnie Mae for mortgages held by "specified large investors." Revenues from the excise taxes are directed to a new Housing Downpayment Trust Fund to provide grants for down payment assistance to eligible individuals and families.
Proponents argue
Supporters argue that this legislation directly addresses the housing affordability crisis by disincentivizing large institutional investors from dominating the single-family home market, which drives up prices and reduces inventory for individual homebuyers. They contend it will level the playing field for families seeking to purchase homes and provide much-needed financial assistance to achieve homeownership.
Opponents contend
Opponents might argue that these taxes and restrictions could disrupt the housing market, potentially reducing the availability of rental housing, especially in areas where institutional investors provide a significant portion of the rental stock. They may also contend that such measures could discourage overall investment in housing, lead to unintended consequences for property values, or increase rental costs for consumers.
The bill is moderately complex due to its detailed tax code amendments and definitions, requiring careful reading to understand its full implications for both institutional investors and the housing market.
Section 2(a), new IRC Section 5000E
Excise Tax on Newly Acquired Single-Family Residences
This provision imposes a substantial excise tax on "applicable taxpayers" (defined as persons managing pooled funds and fiduciaries, excluding construction/rehabilitation organizations) who acquire any single-family residence after the bill's enactment. The tax is set at 50% of the fair market value of each newly acquired residence, creating a significant financial disincentive for institutional investors to expand their portfolios of single-family homes.
Supporters argue
Supporters argue this tax will immediately deter institutional investors from further expanding their portfolios of single-family homes, thereby freeing up inventory for individual buyers and stabilizing housing prices, making homeownership more accessible.
Critics contend
Critics might argue that this tax is overly punitive and could severely restrict investment in the housing market, potentially reducing the supply of quality rental housing or discouraging necessary capital improvements and market liquidity.
Tradeoffs
Balances the goal of reducing institutional ownership and promoting individual homeownership with potential impacts on market liquidity and the supply of rental housing.
Section 2(a), new IRC Section 5000F
Excise Tax on Excess Single-Family Residences
This section imposes an annual excise tax of $50,000 per residence on applicable taxpayers who fail to reduce their holdings of single-family residences below a declining "maximum permissible units" threshold. This threshold phases down over nine years, starting at 90% of holdings on an "applicable date" and eventually reaching zero for hedge fund taxpayers, or 50 units for other applicable taxpayers. Sales to corporations or individuals already owning another single-family residence are considered "disqualified sales" and do not count towards reducing the taxpayer's holdings.
Section 3, new IRC Section 9512 and Section 3(b)
Housing Downpayment Trust Fund and Grant Program
This section establishes a "Housing Downpayment Trust Fund" in the Treasury, which will be funded by the revenues generated from the new excise taxes. It also mandates the Secretary of Housing and Urban Development (HUD) to create a grant program for State housing finance agencies. These grants will be used to establish new or supplement existing programs that provide down payment assistance, closing costs, and interest rate buydowns to individuals and families whose incomes do not exceed 120% of the area median income, specifically for purchasing single-family homes. Priority is given to individuals buying homes sold by applicable taxpayers.
Section 4(a) amending IRC Section 163, and Section 4(b) amending IRC Section 167
Disallowance of Mortgage Interest and Depreciation Deductions
This section amends the Internal Revenue Code to disallow two significant tax benefits for applicable taxpayers. Specifically, it prohibits deductions for mortgage interest (under Section 163) and depreciation (under Section 167) on single-family residences if the owner is liable for the new excise tax under Chapter 50B for that taxable year. These disallowances apply to indebtedness incurred and property placed in service in taxable years beginning after the bill's enactment.
Section 5(a) amending the Housing and Community Development Act of 1992, and Section 5(b) amending the National Housing Act
Prohibitions on Federal Mortgage Assistance
This section prohibits Fannie Mae and Freddie Mac from newly purchasing or securitizing mortgages on single-family housing, and Ginnie Mae from newly guaranteeing or purchasing securities backed by mortgages, where the mortgagee is a "specified large investor." This aims to cut off federal backing for mortgages held by large institutional investors, increasing their cost of capital. However, the term "specified large investor" is defined by reference to a new IRC section 280I(b), which is not explicitly defined within the provided bill text.
Both prohibitions on federal mortgage assistance (Fannie Mae, Freddie Mac, Ginnie Mae) rely on the term "specified large investor (as such term is defined in section 280I(b) of the Internal Revenue Code of 1986)." However, section 280I(b) is not created or defined anywhere in the bill text provided.
Section 5(a) (amending 12 U.S.C. 4541 et seq.) and Section 5(b) (amending 12 U.S.C. 1717(c))
Why it matters:This appears to be a drafting oversight or an assumption that Section 280I(b) would be defined elsewhere, rather than an intentional burial for obfuscation. Without this definition, the scope of Section 5 is unclear and potentially unenforceable.
Case for: Proponents would argue that the intent is clear: to prevent federal mortgage assistance from benefiting large institutional investors. The specific definition would likely align with the "applicable taxpayer" definition in Section 2, and the omission is a technical error to be corrected.
Case against: Critics would highlight that the lack of a definition renders a significant portion of the bill unenforceable or subject to arbitrary interpretation, creating legal uncertainty and potential for unintended consequences in the mortgage market.
Estimated impact: Without a definition, the impact of Section 5 is currently zero or highly uncertain, despite its intended significant effect on federal mortgage programs and the entities it aims to target.
This subsection establishes aggregation rules, stating that all persons treated as a single employer under subsections (a) and (b) of section 52 of the IRC shall be treated as a single person for the purposes of this chapter. It also modifies how section 52(a) and (b) are applied, specifically including any activity treated as a trade or business under paragraph (5) or (6) of section 469(c).
Section 2(a), new IRC Section 5000G(e)
Why it matters:This is standard legislative practice for anti-avoidance provisions, designed to prevent large entities from circumventing tax rules by fragmenting their holdings across multiple legal structures. It's not intended to be hidden but requires detailed reading.
Case for: Supporters argue these rules are essential to prevent large institutional investors from fragmenting their holdings across multiple legal entities to evade the excise taxes and other restrictions, ensuring the bill's intent is not undermined by corporate structuring.
Case against: No specific opposition is typically raised against standard anti-avoidance aggregation rules, though some might argue they add complexity for legitimate multi-entity operations and could inadvertently capture entities not intended to be targeted.
Estimated impact: Prevents tax avoidance by related entities, ensuring the excise taxes and other restrictions apply to the true economic scale of institutional holdings, thereby increasing the bill's effectiveness and revenue generation.
This subsection defines a "disqualified sale" as any sale or transfer of a single-family residence to (1) a corporation or other entity engaged in a trade or business, or (2) an individual who owns any other single-family residence at the time of such sale or transfer. Critically, such sales do not count towards reducing the number of applicable single-family residences for the purpose of the excess single-family residence tax (Section 5000F(b)(2)).
Section 2(a), new IRC Section 5000G(d)
Why it matters:While a definition, its specific implications for the tax calculation and the bill's ultimate goal of promoting individual homeownership could be overlooked by a casual reader. It's a crucial detail for understanding how institutional investors can (or cannot) comply.
Case for: Proponents argue this definition is critical to ensure that divested homes actually go to individual, non-investor homeowners, rather than simply being shuffled between institutional players or sold to individuals who are themselves investors, thereby directly supporting the bill's primary objective.
Case against: Critics might argue that this restriction could limit the pool of potential buyers for divested properties, potentially making it harder for institutional investors to meet the reduction targets and leading to market distortions or depressed prices for these specific properties.
Estimated impact: Directs the flow of divested properties towards individual, first-time, or non-investor homebuyers, reinforcing the bill's primary goal of increasing individual homeownership and preventing circumvention of the divestment mandate.