Sponsors (71)
Official title: To amend the Internal Revenue Code of 1986 to establish a tax credit for neighborhood revitalization, and for other purposes.
Introduced April 10, 2025 by Mike Kelly · Last progress April 10, 2025
The bill aims to expand affordable owner-occupied housing in distressed areas and help small builders via a neighborhood homes tax credit and state allocations, but does so at the cost of significant federal tax expenditures, added compliance/recapture risk, allocation limits that may leave some high-need places unfunded, and rules that can complicate certain transactions and use of clean-energy incentives.
Low-income and distressed communities (urban, rural) would see increased construction and rehabilitation of affordable, owner-occupied homes through a neighborhood homes tax credit, expanding housing supply in targeted tracts.
Homebuyers with qualifying incomes can access newly built or rehabilitated starter homes at lower prices because developer tax credits reduce development costs and can translate into lower sale prices.
States receive a predictable annual allocation formula (minimum allocations) to fund affordable owner-occupied housing in targeted tracts, giving state governments a stable tool to plan and finance development.
Developers, homeowners, and small builders face complex compliance, certification, reporting, and potential recapture obligations (e.g., affordable-sale rules within 5 years), increasing administrative burden and financial risk.
Taxpayers could bear substantial federal costs from the tax expenditures and outlays associated with the neighborhood homes credit.
State allocation ceilings on credits may cap the number of funded projects in high-need areas, leaving some eligible affordable-home projects unfunded and limiting supply where demand is greatest.
Based on analysis of 3 sections of legislative text.
Creates a new Neighborhood Homes tax credit to subsidize the gap between development costs and affordable sale prices for newly built or rehabbed for-sale homes.
Creates a new federal tax credit called the Neighborhood Homes Credit to subsidize construction or substantial rehabilitation of for-sale homes sold at affordable prices in distressed urban and rural neighborhoods. The credit reimburses part of the gap between reasonable development costs and the affordable sale price, subject to percentage and dollar caps, and functions as a general business credit against federal tax liability. The law defines which costs qualify, limits acquisition costs within eligible development costs, requires an allocating/oversight agency to approve cost reasonableness and feasibility, and ties administration to fair housing requirements. It adds a new Internal Revenue Code section (42A) and establishes formula limits (percent-of-cost and percent-of-median-price) and procedures for calculating the credit amount and claiming it on business tax returns.