The Neighborhood Homes Investment Act (NHIA) was introduced today in the House. H.R. 3940 is identical to the Senate version that was introduced in March and is expected to help improve and rehabilitate the country’s owner-occupied housing stock. The bipartisan legislation’s original cosponsors include Reps. Mike Kelly, R-Pennsylvania-16th District; Brian Higgins, D-New York-26th District; Claudia Tenney, R-New York-24th District; Dan Kildee, D-Michigan-8th District; Randall Feenstra, R-Iowa-4th District, and Dwight Evans, D-Pennsylvania-3rd District.
While there is a lot to unpack about the bill, this blog will highlight the main differences between this bill and the previous version of the House bill that was introduced in 2021. To get a more in-depth analysis of the NHIA, read this previous Notes from Novogradac blog on the Senate version of the NHIA.
About the Neighborhood Homes Tax Credit
The NHIA would create the Neighborhood Homes Tax Credit (NHTC), which is modeled after the low-income housing tax credit. The NHTC would be a federal tax credit that covers the gap between the cost of building or renovating a home and the price at which that home can be sold. The credit would also help existing homeowners to rehabilitate their homes. States would allocate the credit on a competitive basis and monitor its compliance.
To qualify for the NHTC, homes must be in distressed areas (as defined in the statute as areas with high poverty rates, low median family incomes and low home values) where private sector involvement is needed.
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Impact of the NHTC
The nationwide total is estimated to range from $2.4 billion to $3.0 billion annually.
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The NHIA Coalition identified NHIA’s potential impact over the next decade.
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Changes to the NHTC in the 2023 House Bill
The 2023 House bill features a few changes from the bill that was introduced in 2021.
First, the bill increases the volume of the credit–from $6 per capita in the 2021 bill to $7 per capita in the 2023 House bill and the small state minimum would increase from $8 million in the 2021 bill to $9 million in the 2023 House bill. This is done to account for inflation since 2020. This change should maintain the projected production of 50,000 homes annually.
The bill also provides states with additional flexibility. First, it allows for activities in presidentially declared disaster areas. Second, for states that have both relatively high nonmetropolitan population shares and relatively few census tracts that meet the general standards, the bill increases the exception percentage from 20% to 40%, making projects more financially feasible. Finally, it allows state agency discretion to increase the credit amount to 120% of the gap between development costs and the sale price if necessary for project feasibility.
The bill would also provide a series of changes for owner-occupied rehabilitations. The bill would:
- Limit the income of eligible homeowners to 100% of the area median income,
- Increase the credit percentage to 50%;
- Limit the credit amount to $50,000 per home;
- Include reconstruction in the definition of substantial rehabilitation; and
- Require states to set standards for disclosure of homeowner’s rights and responsibilities and determine a homeowner’s capacity to repay the portion of rehabilitation costs not covered by the tax credit.
Finally, the NHTC would be exempt from the alternative minimum tax and would allow the use of the Sections 25C, 25D and 45L tax incentives for clean energy and energy efficiency improvement without penalty or basis reduction.
Like most tax legislation, the NHIA is not likely to be considered on its own, but is more likely to be attached to must-pass legislation. Some potential legislative “vehicles” include the farm bill, which is a five-year law that governs an array of agricultural and food programs that expires Sept. 30 and occasionally includes tax provisions, or the Federal Aviation Administration reauthorization, which includes extensions of aviation-related tax provisions. But the most likely pathway to enactment for the NHIA is it being attached to a year-end tax bill, which itself is often added to annual spending bills. Stay tuned.