H.R. 2854: Neighborhood Homes Investment Act

H.R. 2854, the Neighborhood Homes Investment Act, creates a federal tax credit for building or substantially rehabbing homes in distressed neighborhoods — the places where it costs more to develop a house than the finished house can sell for. The credit is built to cover that gap, and only for homes sold to people who will live in them.

The credit is capped three ways, and the builder gets whichever is smallest: the actual gap between development cost and sale price, 40% of eligible development costs, or 32% of the national median sale price for a new home. A state agency can push the gap-based amount up to 120% if it decides the project won't pencil out otherwise.

The guardrails are the point. Buyers generally need family income at or below 140% of their area's median, have to use the home as their main residence, and pay a price capped at roughly 4 times local median family income (higher for small 2- to 4-unit buildings). To count as a substantial rehab, the work has to cost more than $25,000 or more than 20% of what was paid to acquire the building and land — whichever is larger.

Flipping is discouraged directly. Sell within five years and you repay part of the gain — 50% in year one, dropping 10 percentage points for each full year you stay, with waivers for hardships like illness, disability, or divorce. The state can put a lien on the home to make sure that money comes back.

There's a separate track for homeowners stuck with a house they can't afford to fix: an owner-occupied rehab credit capped at $50,000, with a carve-out for foundations crumbling from pyrrhotite or other iron sulfide minerals.

States run the front end. Each gets an annual credit ceiling — $9 per resident or $12 million, whichever is greater, with unused room carrying forward up to three years — and decides which projects win allocations under a public plan that is supposed to weigh neighborhood need, sponsor track record, and long-term homeownership.