Neighborhood Homes Investment Act

Bill Number: H.R. 2854
Origin Chamber: House
Congress: 119th Congress, Session 1
Policy Area: Taxation
Status: Introduced
Latest Action: 2025-04-10: Referred to the House Committee on Ways and Means.
Last Updated: 2026-06-19T08:06:48Z

AI-Generated Summary

Purpose

The Neighborhood Homes Investment Act aims to address the U.S. housing shortage, particularly in low-income and distressed communities, by providing tax incentives for building or rehabilitating affordable owner-occupied homes. It seeks to bridge the "value gap" between development costs and sale prices, promote homeownership as a source of wealth and stability, and revitalize neighborhoods in both urban and rural areas while complying with fair housing laws.

Key Provisions

Neighborhood Homes Credit (New IRC Section 42A): Taxpayers (e.g., builders or developers) can claim a credit for each qualified residence sold in an "affordable sale" within a 5-year period after allocation. The credit is the lesser of:
The excess of reasonable development costs over the sale price (up to 120% if needed for feasibility).
40% of eligible development costs (excluding most land/building acquisition costs).
32% of the national median sale price for new homes (based on recent census data).
Qualified Residence: A single-family home, condo, or co-op unit (up to 4 units) that is permanently affixed, located in a "qualified census tract" (distressed areas based on income, poverty, and home values), and part of an approved project.
Qualified Census Tracts: Areas meeting criteria like median family income ≤80% of the area median, poverty rate ≥130% of the area average, or low home values; includes rural designations, disaster areas, or tracts with affordable home shortages. The Secretary of Housing and Urban Development publishes annual lists.
Affordable Sale: Sale to a "qualified homeowner" (individual with family income ≤140% of area median income who will use it as their principal residence) at a price capped at 4 times the area median family income (higher for multi-unit homes: 125-175% multiplier).
State Allocations and Ceilings: State-designated "neighborhood homes credit agencies" (typically housing finance agencies) allocate credits via a "qualified allocation plan" prioritizing need, stability, sponsor capability, and long-term ownership. Annual state ceiling is the greater of $9 per capita or $12 million, with 3-year carryforward of unused amounts. At least 20% set-aside for rural/disaster/shortage areas (up to 40% in smaller states); 10% for nonprofits.
Agency Responsibilities: Develop standards for costs, quality, and owner protections; provide public explanations for allocations; report annually to the IRS on projects, costs, sales, and homeowner incomes; conduct outreach to small builders.
Repayment Requirement: If a home is resold within 5 years, the seller repays 50% of the gain (decreasing 10% per year) to the state agency for reuse in projects; a lien secures this. Waivers possible for hardships (e.g., divorce, illness).
Owner-Occupied Rehabilitation: Separate credit (up to $50,000 or 50% of certified rehab costs) for rehabilitating existing homes owned by low-income homeowners (≤100% area median income), with relaxed location rules and no credit if taxpayer is related to owner.
Other Rules: Credits integrate with general business credits, apply against alternative minimum tax, and adjust basis for energy-efficient improvements. Excludes related-party sales; denies rental deductions if converted from owner-occupied within 5 years. Inflation adjustments start in 2026. State energy subsidies for qualified homes are tax-exempt.

Significant Changes to Existing Law

Adds a new tax credit (Section 42A) modeled after the low-income housing tax credit (LIHTC, Section 42) but focused on owner-occupied single-family homes rather than rentals.
Amends IRC Section 38 to include this as a general business credit; updates alternative minimum tax rules and passive activity loss provisions (Section 469).
Modifies energy credit sections (25C, 25D, 45L) to prevent double-counting basis for qualified projects.
Introduces a new exclusion (Section 139J) for state energy subsidies on qualified residences, not previously available.
Effective for taxable years after December 31, 2025; no retroactivity.

Potential Impacts

Government Agencies: State housing agencies gain administrative duties (allocations, reporting, outreach), potentially increasing workload but with federal reporting support from the IRS and HUD. IRS faces new compliance monitoring and annual public reports (de-identified). Could reduce federal tax revenue due to credits but recycle funds via repayments.
Citizens: Boosts supply of affordable starter homes and repairs in distressed areas, aiding low- and moderate-income families (up to 140% area median income) in achieving homeownership. May lower housing costs and improve neighborhood stability, though limited to qualified tracts.
International Relations: No direct impact, as the bill is domestic tax policy focused on U.S. housing.

Main Stakeholders Affected

Developers and Builders: Eligible for credits on new construction or substantial rehab (costs >$25,000 or 20% of acquisition); small businesses benefit from minimized application burdens.
Low-Income Homeowners and Buyers: Gain access to affordable homes/rehab; protections for existing owners during rehabs.
Nonprofit Organizations: 10% set-aside for projects, encouraging community-focused development.
State and Local Governments: Housing agencies manage programs; local communities see revitalization in poor/rural/disaster areas.
Federal Agencies: IRS (tax administration), HUD (census tract lists), and Treasury (regulations).

Notable Legal, Constitutional, or Political Implications

Legal: Aligns with the Fair Housing Act by requiring nondiscriminatory administration; includes anti-abuse rules (e.g., related-party restrictions, liens) to prevent misuse. Regulations authorized to curb avoidance, ensuring credits support feasibility without excess profiteering.
Constitutional: No apparent challenges; promotes equal protection by targeting underserved areas without racial or other suspect classifications.
Political: Bipartisan sponsorship (Democrats and Republicans) signals broad support for housing affordability. Could influence future tax policy by expanding incentives beyond rentals, potentially sparking debates on federal spending priorities amid housing crises.

This summary was generated by AI and may contain inaccuracies. Refer to the official source document for the authoritative text.

Sponsor

Rep. Kelly, Mike [R-PA-16]

Cosponsors (70)

Rep. Larson, John B. [D-CT-1], Rep. Carey, Mike [R-OH-15], Rep. Sewell, Terri A. [D-AL-7], Rep. Buchanan, Vern [R-FL-16], Rep. Davis, Danny K. [D-IL-7], Rep. Miller, Carol D. [R-WV-1], Rep. Panetta, Jimmy [D-CA-19], Rep. Feenstra, Randy [R-IA-4], Rep. Kustoff, David [R-TN-8], Rep. Malliotakis, Nicole [R-NY-11], Rep. Moran, Nathaniel [R-TX-1], Rep. Kelly, Robin L. [D-IL-2], Rep. Meuser, Daniel [R-PA-9], Rep. Meeks, Gregory W. [D-NY-5], Rep. Correa, J. Luis [D-CA-46], Rep. Pettersen, Brittany [D-CO-7], Rep. Zinke, Ryan K. [R-MT-1], Rep. Smucker, Lloyd [R-PA-11], Rep. Houlahan, Chrissy [D-PA-6], Rep. Nunn, Zachary [R-IA-3], Rep. Tonko, Paul [D-NY-20], Rep. Tenney, Claudia [R-NY-24], Rep. Dingell, Debbie [D-MI-6], Rep. Chu, Judy [D-CA-28], Rep. Davis, Donald G. [D-NC-1], Rep. Vasquez, Gabe [D-NM-2], Rep. DeGette, Diana [D-CO-1], Rep. Rulli, Michael A. [R-OH-6], Rep. Bishop, Sanford D. [D-GA-2], Rep. Craig, Angie [D-MN-2], Rep. McCollum, Betty [D-MN-4], Rep. Omar, Ilhan [D-MN-5], Rep. Mrvan, Frank J. [D-IN-1], Rep. LaHood, Darin [R-IL-16], Rep. Budzinski, Nikki [D-IL-13], Rep. Peters, Scott H. [D-CA-50], Rep. Schakowsky, Janice D. [D-IL-9], Rep. Brownley, Julia [D-CA-26], Rep. Sorensen, Eric [D-IL-17], Rep. Mann, Tracey [R-KS-1], Rep. Soto, Darren [D-FL-9], Rep. Lawler, Michael [R-NY-17], Rep. Evans, Dwight [D-PA-3], Rep. Hayes, Jahana [D-CT-5], Rep. Landsman, Greg [D-OH-1], Rep. Strickland, Marilyn [D-WA-10], Rep. Beatty, Joyce [D-OH-3], Rep. Davids, Sharice [D-KS-3], Rep. Neguse, Joe [D-CO-2], Rep. Khanna, Ro [D-CA-17] and 20 more