In the wake of a bipartisan housing package passing, Representative Mike Carey (R-OH) has introduced legislation to create new tax incentives aimed at encouraging the renovation of older rental properties to preserve them as affordable housing.
The HOPE Act
The Housing Opportunities and Preservation Enhancement (HOPE) Act, H.R. 9573, intends to attract private investment for the rehabilitation of affordable housing. The bill targets residential rental properties that are at least 15 years old, many of which are past their compliance period for the Low-Income Housing Tax Credit (LIHTC) under IRC § 42 and at risk of being converted to market-rate units.
The HOPE Act would make smaller-scale preservation projects more attractive to individual investors by offering several key tax benefits. The legislation would exempt investors in qualified properties from the passive activity loss rules under IRC § 469 and the profit-motive rules of IRC § 183. This would allow investors to deduct losses from these properties against other income.
The bill also would establish a 15-year recovery period for depreciation for qualified properties, providing a more favorable depreciation schedule than is typically available for residential rental property.
To ensure long-term preservation, the bill includes a provision granting qualified non-profit or government buyers a right of first refusal to purchase the property at a below-market price after a 10-year period.
To qualify for the proposed incentives, a property must:
- be at least 15 years old;
- undergo significant rehabilitation equal to or exceeding the greater of $20,000 per unit or 20% of the building’s adjusted basis;
- be owned by a partnership involving a non-profit, government, public housing authority, or tribal entity as a managing partner; and,
- have at least 70% of its units be rent-restricted for families making 80% or less of the local area median income.
“The Housing Opportunities and Preservation Enhancement Act will help rehabilitate aging rental properties, expand access to quality affordable housing, and encourage partnerships that put residents first,” said Carey, who is on the House Ways and Means Committee. “By modernizing the tax code, we can ensure more hardworking families have access to safe, affordable places to call home,” he added.
Bill introduced as major housing package becomes law
Carey introduced the HOPE Act days after Congress passed a comprehensive bipartisan housing package, the 21st Century ROAD to Housing Act, H.R. 6644. That bill became law on July 11, without President Trump’s signature.
The ROAD to Housing Act contains multiple provisions to enhance rental housing — but they are not directly tied to the Tax Code as in Carey’s bill.
Among the ROAD to Housing Act’s rental housing provisions are public housing enhancements, including a 100,000-unit increase in the Rental Assistance Demonstration program cap and new tenant protections. The enacted housing package also revises Rural House Service programs by decoupling rental assistance from maturing mortgages.
For more information on the current LIHTC, see Checkpoint’s Federal Tax Coordinator 2d ¶ L-15701.
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