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1 1 (July 22, 2021)

handle is hein.crs/govedzr0001 and id is 1 raw text is: C ssi&nsI flesesnt $ervIee lntcatniriv the b~isI tti~ ~ July 22, 2021 Neighborhood Homes Investment Act: Overview and Policy Considerations The Neighborhood Homes InvestmentAct(NHIA; S.98 and H.R 2143) would create a tax credit intended to encourage the development of affordable homes for ownership in lower-income areas. The Biden Administration has called forpassageof the proposal. The bill was previously introduced in the 116th Congress (S. 4073, H.R 3316, and H.R 2). Overview of the Proposal The NHIA would provide federaltaxcredits -known as the neighborhood homes investment credits (NHICs)-to offset the cost of constructing or rehabilitating owner-occupied homes. The credits would be awarded to project sponsors (e.g., developers), which would eitherusethe credits directly to offset development and rehabilitation costs or sell the credits to investors to raise capital for home construction. Under the bill, states would designate neighborhood homes credit agencies to screen sponsor applications and allocate credits according to a federally required, but state-created, qualified allocation plan (QAP). Each state would be allowed to annually award an amount of credits equal to the greater of(1) $6 multiplied by its population, or (2) $8 million. Annual allocation authority would be adjustedfor inflation. The mechanics of the NHIC would closely resemble the low-income housing taxcredit (LIHTC), which is a federal tax credit for the construction and rehabilitation of affordable rental housing. The new markets taxcredit (NMTC) and s everal energy-related taxcredits also use the s ame general approach, which is often referred to as tax equity financing. Selected Proposal Details Eligible Development Types and Claimants The credits could be used by developers to construct new homes orrehabilitate existing properties for sale. Homeowners who substantially rehabilitate-meaning incurring a cost of at least $20,000-their principal residencecould alsobenefit fromthe credit, though they would have to partner with a business taxpayer (e.g., lender) because the credit could not be claimed by individuals. Credits could not be claimed until construction or rehabilitation were complete, and in the case of a s ale, when the property was sold to a qualified homebuyer. Eligible Property Types Eligible property would berestrictedto single-family homes containing four or fewer res idential units; condominiumunits; and houses or apartments owned by a housing co-op. Secondhomes andrentalproperties would not be eligible for the credit. Cred it Amount The credit amount would be equal to development costs minus the sales price, up to a limit. No credit would be allowed if the sales price covered development costs. The credit amount would be limited to no more than 35% of the les ser of(1) qualified development costs, or (2) 80% ofthe national median sales price for newhomes as determined by the most recent census data. For an example of the credi calculation for new construction, see Table 1. Table I. New Construction Credit Example Land Acquisition Cost $40,000 Construction Cost $200,000 Total Development Costs $240,000 Less: Sales Price ($1 90,000) Difference $50,000 Tax Credit Limit (35% of $84,000 $240,000) Tax Credit Allowed $50,000 Source: Neigh borhood Homes Coalition Presentation. In this example, the tax credit amount allowed wouldbe $50,000 (the difference between development costs and the sales price). Since this amount is less than the taxcredit limit ($84,000), it is not subjectto this cap. Income Limits Credits would be restricted to properties with occupants whose income did not exceed 140% of an area's or state's median income. A state's median income would be used for nonmetropolitan (i.e., rural) areas. The income limit would be the s ame regardless of whether thehome was new constructionor a rehabilitation project. Sales Price Limits The sales price ofa property would be limited to four times the appropriate median income measure. This price limit would increaseto five times, sixtimes, and seventimes the relevant area median income for properties with two, three, and four residential units, respectively. Resale Timeframe Limit Properties resoldwithin five years of completion would require the s eller to pay a portion of the gain fromthe sale to the state's neighborhood homes credit agency. The https://crsreports.congress 0

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