Workforce Housing Tax Credit

Summary#

This bill creates a new federal tax credit called the Middle-Income Housing Credit (added as section 42A to the Internal Revenue Code). The credit is designed to support rental housing with units that are rent-restricted and occupied by households with incomes at or below 100 percent of area median gross income (AMI). The credit is calculated as a percentage of the qualified basis of a qualified middle-income building and is paid over a 15-year credit period. The Secretary of the Treasury sets monthly percentages so that the present value of the credit equals 50% of qualified basis for new, not federally subsidized buildings and 20% for other buildings. Minimum annual credit rates and special rules apply for federally subsidized and tax-exempt bond–financed buildings.

The bill defines how to calculate eligible basis and applicable fractions, how rehabilitation expenditures can be treated as a separate new building, and special rules for existing buildings. A qualified middle-income housing project must have at least 60% of residential units both rent-restricted and occupied by households at or below 100% AMI, and at least 20% of units must meet those tests but not be counted under the existing low-income housing credit (section 42).

State housing credit agencies receive allocations from a State housing credit ceiling. The bill sets a default State ceiling, a 5% increase for certain rural projects, and allows a limited set-aside for projects involving qualified nonprofit organizations. Projects receiving allocations must meet extended middle-income housing commitments that impose use restrictions and tenant protections for a long period. Taxpayers and agencies must provide certifications and annual reports to the IRS. The credit is included in the general business credit and has specified interactions with existing tax rules like basis reduction and certain minimum tax rules. The amendments apply to buildings placed in service after December 31, 2025.

What it means for you#

• Developers: If you build or substantially rehabilitate rental buildings that meet the project and unit rules, you may qualify for a 15-year tax credit based on your building's qualified basis. You must get an allocation from your State housing credit agency and sign an extended middle-income housing commitment.
• Housing credit agencies: Agencies must use a qualified allocation plan, require market studies, and decide how much credit to allocate to projects within the State ceiling. They must monitor projects and submit annual reports to the IRS.
• Tenants: A middle-income unit must be rent-restricted (rent not more than 30% of the imputed income limit) and occupied by households at or below 100% AMI. Tenants in place who later exceed the income limit generally continue to count as middle-income tenants unless certain limits are exceeded.
• Taxpayers and investors: The credit reduces income tax liability as part of the general business credit. Taxpayers must file certifications and may be subject to recapture or adjustments if required conditions are not met.
• Timing: The rules in the bill apply to buildings placed in service after December 31, 2025.

Expenses#

The bill text does not include an official estimate of federal budget costs or revenue effects. The bill creates a new federal tax credit that will reduce federal tax revenue when claimed, but the text contains no cost or revenue estimates.

Proponents' View#

No publicly available information in the bill text or provided metadata states the sponsors' or proponents' arguments for the bill.

Opponents' View#

No publicly available information in the bill text or provided metadata states opponents' arguments or concerns about the bill.