[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[S. 1686 Introduced in Senate (IS)]
<DOC>
119th CONGRESS
1st Session
S. 1686
To amend the Internal Revenue Code of 1986 to establish a tax credit
for neighborhood revitalization, and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
May 8, 2025
Mr. Young (for himself, Mr. Warner, Mrs. Hyde-Smith, Mr. Wyden, Mr.
Cramer, Mr. Kaine, Mr. Scott of South Carolina, and Mr. Coons)
introduced the following bill; which was read twice and referred to the
Committee on Finance
_______________________________________________________________________
A BILL
To amend the Internal Revenue Code of 1986 to establish a tax credit
for neighborhood revitalization, and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Neighborhood Homes Investment Act''.
SEC. 2. FINDINGS AND SENSE OF CONGRESS.
(a) Findings.--Congress finds the following:
(1) Experts have determined that it could take nearly a
decade to address the housing shortage in the United States, in
large part due to increasing housing prices and insufficient
supply.
(2) The housing supply shortage disproportionately impacts
low-income and distressed communities.
(3) Homeownership is a primary source of household wealth
and neighborhood stability. Many distressed communities have
low rates of homeownership and lack quality, affordable starter
homes, while many individuals who own their homes have
difficulty securing financing for home repairs and
improvements.
(4) Housing construction in distressed communities is
prevented by the value gap, the difference between the cost to
develop a home and the sale price of the home.
(5) The Neighborhood Homes Investment Act can close these
financing gaps to increase housing development and
rehabilitation in distressed communities.
(b) Sense of Congress.--It is the sense of Congress that the
neighborhood homes credit (as added under section 3 of this Act) should
be an activity administered in a manner which--
(1) revitalizes distressed communities in rural and urban
geographies;
(2) minimizes application burdens on small businesses
applying for such credit; and
(3) is consistent with the Fair Housing Act of 1968 (42
U.S.C. 3601 et seq.).
SEC. 3. NEIGHBORHOOD HOMES CREDIT.
(a) In General.--Subpart D of part IV of subchapter A of chapter 1
of the Internal Revenue Code of 1986 is amended by inserting after
section 42 the following new section:
``SEC. 42A. NEIGHBORHOOD HOMES CREDIT.
``(a) Allowance of Credit.--For purposes of section 38, the
neighborhood homes credit determined under this section for the taxable
year is, with respect to each qualified residence sold by the taxpayer
during such taxable year in an affordable sale, the lesser of--
``(1) an amount equal to--
``(A) the excess (if any) of--
``(i) the reasonable development costs paid
or incurred by the taxpayer with respect to
such qualified residence, over
``(ii) the sale price of such qualified
residence (reduced by any reasonable expenses
paid or incurred by the taxpayer in connection
with such sale), or
``(B) if the neighborhood homes credit agency
determines it is necessary to ensure financial
feasibility, an amount not to exceed 120 percent of the
amount under subparagraph (A),
``(2) 40 percent of the eligible development costs paid or
incurred by the taxpayer with respect to such qualified
residence, or
``(3) 32 percent of the national median sale price for new
homes (as determined pursuant to the most recent census data
available as of the date on which the neighborhood homes credit
agency makes an allocation for the qualified project).
``(b) Development Costs.--For purposes of this section--
``(1) Reasonable development costs.--
``(A) In general.--The term `reasonable development
costs' means amounts paid or incurred for the
acquisition of buildings and land, construction,
substantial rehabilitation, demolition of structures,
or environmental remediation, to the extent that the
neighborhood homes credit agency determines that such
amounts meet the standards specified pursuant to
subsection (f)(1)(D) (as of the date on which
construction or substantial rehabilitation is
substantially complete, as determined by such agency)
and are necessary to ensure the financial feasibility
of such qualified residence.
``(B) Considerations in making determination.--In
making the determination under subparagraph (A), the
neighborhood homes credit agency shall consider--
``(i) the sources and uses of funds and the
total financing,
``(ii) any proceeds or receipts generated
or expected to be generated by reason of tax
benefits, and
``(iii) the reasonableness of the
developmental costs and fees.
``(2) Eligible development costs.--The term `eligible
development costs' means the amount which would be reasonable
development costs if the amounts taken into account as paid or
incurred for the acquisition of buildings and land did not
exceed 75 percent of such costs determined without regard to
any amount paid or incurred for the acquisition of buildings
and land.
``(3) Substantial rehabilitation.--The term `substantial
rehabilitation' means amounts paid or incurred for
rehabilitation of a qualified residence if such amounts exceed
the greater of--
``(A) $25,000, or
``(B) 20 percent of the amounts paid or incurred by
the taxpayer for the acquisition of buildings and land
with respect to such qualified residence.
``(4) Construction and rehabilitation only after allocation
taken into account.--
``(A) In general.--The terms `reasonable
development costs' and `eligible development costs'
shall not include any amount paid or incurred before
the date on which an allocation is made to the taxpayer
under subsection (e) with respect to the qualified
project of which the qualified residence is part unless
such amount is paid or incurred for the acquisition of
buildings or land.
``(B) Land and building acquisition costs.--Amounts
paid or incurred for the acquisition of buildings or
land shall be included under paragraph (A) only if paid
or incurred not more than 3 years before the date on
which the allocation referred to in subparagraph (A) is
made. If the taxpayer acquired any building or land
from an entity (or any related party to such entity)
that holds an ownership interest in the taxpayer, then
such entity must also have acquired such property
within such 3-year period, and the acquisition cost
included under subparagraph (A) with respect to the
taxpayer shall not exceed the amount such entity paid
or incurred to acquire such property.
``(c) Qualified Residence.--For purposes of this section--
``(1) In general.--The term `qualified residence' means a
residence that--
``(A) is real property (constructed on-site or
manufactured off-site) affixed on a permanent
foundation,
``(B) is--
``(i) a house which is comprised of 4 or
fewer residential units,
``(ii) a condominium unit, or
``(iii) a house or an apartment owned by a
cooperative housing corporation (as defined in
section 216(b)),
``(C) is part of a qualified project with respect
to which the neighborhood homes credit agency has made
an allocation under subsection (e), and
``(D) is located in a qualified census tract
(determined as of the date of such allocation).
``(2) Qualified census tract.--
``(A) In general.--The term `qualified census
tract' means a census tract--
``(i) which--
``(I) has a median family income
which does not exceed 80 percent of the
median family income for the applicable
area,
``(II) has a poverty rate that is
not less than 130 percent of the
poverty rate of the applicable area,
and
``(III) has a median value for
owner-occupied homes that does not
exceed the median value for owner-
occupied homes in the applicable area,
``(ii) which--
``(I) is located in a city which
has a population of not less than
50,000 and such city has a poverty rate
that is not less than 150 percent of
the poverty rate of the applicable
area,
``(II) has a median family income
which does not exceed the median family
income for the applicable area, and
``(III) has a median value for
owner-occupied homes that does not
exceed 80 percent of the median value
for owner-occupied homes in the
applicable area,
``(iii) which--
``(I) is located in a
nonmetropolitan county,
``(II) has a median family income
which does not exceed the median family
income for the applicable area, and
``(III) has been designated by a
neighborhood homes credit agency under
this clause,
``(iv) which is not otherwise a qualified
census tract and is located in a disaster area
(as defined in section 7508A(d)(3)), but only
with respect to credits allocated in any period
during which the President of the United States
has determined that such area warrants
individual or individual and public assistance
by the Federal Government under the Robert T.
Stafford Disaster Relief and Emergency
Assistance Act, or
``(v) which is not otherwise a qualified
census tract and is identified by the
neighborhood homes credit agency, through
methodologies detailed in the qualified
allocation plan, as having a shortage of
affordable owner-occupied homes.
``(B) Applicable area.--The term `applicable area'
means--
``(i) in the case of a metropolitan census
tract, the metropolitan area in which such
census tract is located, and
``(ii) in the case of a census tract other
than a census tract described in clause (i),
the State.
``(d) Affordable Sale.--For purposes of this section--
``(1) In general.--The term `affordable sale' means a sale
to a qualified homeowner of a qualified residence that the
neighborhood homes credit agency certifies as meeting the
standards promulgated under subsection (f)(1)(D) for a price
that does not exceed--
``(A) in the case of any qualified residence not
described in subparagraph (B), (C), or (D), the amount
equal to the product of 4 multiplied by the median
family income for the applicable area (as determined
pursuant to the most recent census data available as of
the date of the contract for such sale),
``(B) in the case of a house comprised of 2
residential units, 125 percent of the amount described
in subparagraph (A),
``(C) in the case of a house comprised of 3
residential units, 150 percent of the amount described
in subparagraph (A), or
``(D) in the case of a house comprised of 4
residential units, 175 percent of the amount described
in subparagraph (A).
``(2) Qualified homeowner.--The term `qualified homeowner'
means, with respect to a qualified residence, an individual--
``(A) who owns and uses such qualified residence as
the principal residence of such individual, and
``(B) whose family income (determined as of the
date that a binding contract for the affordable sale of
such residence is entered into) is 140 percent or less
of the median family income for the applicable area in
which the qualified residence is located.
``(e) Credit Ceiling and Allocations.--
``(1) Credit limited based on allocations to qualified
projects.--
``(A) In general.--The credit allowed under
subsection (a) to any taxpayer for any taxable year
with respect to one or more qualified residences which
are part of the same qualified project shall not exceed
the excess (if any) of--
``(i) the amount allocated by the
neighborhood homes credit agency under this
paragraph to such taxpayer with respect to such
qualified project, over
``(ii) the aggregate amount of credit
allowed under subsection (a) to such taxpayer
with respect to qualified residences which are
a part of such qualified project for all prior
taxable years.
``(B) Deadline for completion.--No credit shall be
allowed under subsection (a) with respect to any
qualified residence unless the affordable sale of such
residence is during the 5-year period beginning on the
date of the allocation to the qualified project of
which such residence is a part (or, in the case of a
qualified residence to which subsection (i) applies,
the rehabilitation of such residence is completed
during such 5-year period).
``(2) Limitations on allocations to qualified projects.--
``(A) Allocations limited by state neighborhood
homes credit ceiling.--The aggregate amount allocated
to taxpayers with respect to qualified projects by the
neighborhood homes credit agency of any State for any
calendar year shall not exceed the State neighborhood
homes credit amount of such State for such calendar
year.
``(B) Set-aside for certain projects involving
qualified nonprofit organizations.--Rules similar to
the rules of section 42(h)(5) shall apply for purposes
of this section.
``(3) Determination of state neighborhood homes credit
ceiling.--
``(A) In general.--The State neighborhood homes
credit amount for a State for a calendar year is an
amount equal to the sum of--
``(i) the greater of--
``(I) the product of $9, multiplied
by the State population (determined in
accordance with section 146(j)), or
``(II) $12,000,000, and
``(ii) any amount previously allocated to
any taxpayer with respect to any qualified
project by the neighborhood homes credit agency
of such State which can no longer be allocated
to any qualified residence because the 5-year
period described in paragraph (1)(B) expires
during calendar year.
``(B) 3-year carryforward of unused limitation.--
The State neighborhood homes credit amount for a State
for a calendar year shall be increased by the excess
(if any) of the State neighborhood homes credit amount
for such State for the preceding calendar year over the
aggregate amount allocated by the neighborhood homes
credit agency of such State during such preceding
calendar year. Any amount carried forward under the
preceding sentence shall not be carried past the third
calendar year after the calendar year in which such
credit amount originally arose, determined on a first-
in, first-out basis.
``(f) Responsibilities of Neighborhood Homes Credit Agencies.--
``(1) In general.--Notwithstanding subsection (e), the
State neighborhood homes credit dollar amount shall be zero for
a calendar year unless the neighborhood homes credit agency of
the State--
``(A) allocates such amount pursuant to a qualified
allocation plan of the neighborhood homes credit
agency,
``(B) subject to paragraph (2), allocates not more
than 20 percent of amounts allocated in the previous
year (or for allocations made in the first allocation
year under this section, not more than 20 percent of
the neighborhood homes credit ceiling for such year) to
projects with respect to qualified residences which--
``(i) are located in census tracts
described in subsection (c)(2)(A)(iii),
(c)(2)(A)(iv), (i)(5), or
``(ii) are not located in a qualified
census tract but meet the requirements of
subsection (i)(8),
``(C) subject to paragraph (2), in addition to any
allocation described in subparagraph (B), allocates not
more than 20 percent of amounts allocated in the
previous year (or for allocations made in the first
allocation year under this section, not more than 20
percent of the neighborhood homes credit ceiling for
such year) to projects with respect to qualified
residences which are located in any census tract
described in subsection (c)(2)(A)(v), except that, with
respect to any qualified residence located within such
census tract which is sold to a qualified homeowner,
subsection (d)(2) shall be applied by substituting `120
percent' for `140 percent',
``(D) promulgates standards with respect to
reasonable qualified development costs and fees,
``(E) promulgates standards with respect to
construction quality which are consistent with building
codes or other standards required by the State or local
jurisdiction in which the project is located,
``(F) in the case of any neighborhood homes credit
agency which makes an allocation to a qualified project
which includes any qualified residence to which
subsection (i) applies, promulgates standards with
respect to protecting the owners of such residences,
including the capacity of such owners to pay
rehabilitation costs not covered by the credit provided
by this section and providing for the disclosure to
such owners of their rights and responsibilities with
respect to the rehabilitation of such residences,
``(G) submits to the Secretary (at such time and in
such manner as the Secretary may prescribe) an annual
report specifying--
``(i) the amount of the neighborhood homes
credits allocated to each qualified project for
the previous year,
``(ii) with respect to each qualified
residence completed in the preceding calendar
year--
``(I) the census tract in which
such qualified residence is located,
``(II) with respect to the
qualified project that includes such
qualified residence, the year in which
such project received an allocation
under this section,
``(III) whether such qualified
residence was new, substantially
rehabilitated and sold to a qualified
homeowner, or substantially
rehabilitated pursuant to subsection
(i),
``(IV) the eligible development
costs of such qualified residence,
``(V) the amount of the
neighborhood homes credit with respect
to such qualified residence,
``(VI) the sales price of such
qualified residence, if applicable, and
``(VII) the family income of the
qualified homeowner (expressed as a
percentage of the applicable area
median family income for the location
of the qualified residence), and
``(iii) such other information as the
Secretary may require,
``(H) makes available to the general public a
written explanation for any allocation of a
neighborhood homes credit dollar amount which is not
made in accordance with established priorities and
selection criteria of the neighborhood homes credit
agency, and
``(I) provides educational outreach on application
and compliance requirements, including for small
residential builders and remodelers.
``(2) Alternative for certain states.--
``(A) In general.--In the case of any State which,
for a calendar year, is an applicable State (as defined
in subparagraph (B)), in lieu of the requirements under
subparagraphs (B) and (C) of paragraph (1), the
neighborhood homes credit agency of the State may elect
to allocate not more than 40 percent of amounts
allocated in the previous year (or for allocations made
in the first allocation year under this section, not
more than 40 percent of the neighborhood homes credit
ceiling for such year) to projects with respect to
qualified residences which are described in either
subparagraph (B) or (C) of paragraph (1).
``(B) Applicable state.--For purposes of this
paragraph, the term `applicable State' means a State
which, for purposes of the determining the amount under
subsection (e)(3)(A)(i) for the calendar year with
respect to such State, received the amount described in
subclause (II) of such subsection.
``(3) Qualified allocation plan.--For purposes of this
subsection, the term `qualified allocation plan' means any plan
which--
``(A) sets forth the selection criteria to be used
to prioritize qualified projects for allocations of
State neighborhood homes credit dollar amounts,
including--
``(i) the need for new or substantially
rehabilitated owner-occupied homes in the area
addressed by the project,
``(ii) the expected contribution of the
project to neighborhood stability and
revitalization, including the impact on
neighborhood residents,
``(iii) the capability and prior
performance of the project sponsor, and
``(iv) the likelihood the project will
result in long-term homeownership,
``(B) has been made available for public comment,
``(C) as determined by the neighborhood homes
credit agency, is likely to result in the selection of
highly qualified applicants while also minimizing, to
the extent practicable, application costs and barriers
to entry for small residential builders and re-
modelers, and
``(D) provides a procedure that the neighborhood
homes credit agency (or any agent or contractor of such
agency) shall follow for purposes of--
``(i) identifying noncompliance with any
provisions of this section, and
``(ii) notifying the Internal Revenue
Service of any such noncompliance of which the
agency becomes aware.
``(g) Repayment.--
``(1) In general.--
``(A) Sold during 5-year period.--If a qualified
residence is sold during the 5-year period beginning
immediately after the affordable sale of such qualified
residence referred to in subsection (a), the seller
shall transfer an amount equal to the repayment amount
to the relevant neighborhood homes credit agency.
``(B) Use of repayments.--A neighborhood homes
credit agency shall use any amount received pursuant to
subparagraph (A) only for purposes of qualified
projects.
``(2) Repayment amount.--For purposes of paragraph (1)(A)--
``(A) In general.--The repayment amount is an
amount equal to the applicable percentage of the gain
from the sale to which the repayment relates.
``(B) Applicable percentage.--For purposes of
subparagraph (A), the applicable percentage is 50
percent, reduced by 10 percentage points for each year
of the 5-year period referred to in paragraph (1)(A)
which ends before the date of such sale.
``(3) Lien for repayment amount.--A neighborhood homes
credit agency receiving an allocation under this section shall
place a lien on each qualified residence that is built or
rehabilitated as part of a qualified project for an amount such
agency deems necessary to ensure potential repayment pursuant
to paragraph (1)(A).
``(4) Waiver.--
``(A) In general.--The neighborhood homes credit
agency may waive the repayment required under paragraph
(1)(A) if the agency determines that making a repayment
would constitute a hardship to the seller.
``(B) Hardship.--For purposes of subparagraph (A),
with respect to the seller, a hardship may include--
``(i) divorce,
``(ii) disability,
``(iii) illness, or
``(iv) any other hardship identified by the
neighborhood homes credit agency for purposes
of this paragraph.
``(h) Other Definitions and Special Rules.--For purposes of this
section--
``(1) Neighborhood homes credit agency.--The term
`neighborhood homes credit agency' means the agency designated
by the governor of a State as the neighborhood homes credit
agency of the State.
``(2) Qualified project.--The term `qualified project'
means a project that a neighborhood homes credit agency
certifies will build or substantially rehabilitate one or more
qualified residences.
``(3) Determinations of family income.--Rules similar to
the rules of section 143(f)(2) shall apply for purposes of this
section.
``(4) Possessions treated as states.--The term `State'
includes the District of Columbia and the possessions of the
United States.
``(5) Special rules related to condominiums and cooperative
housing corporations.--
``(A) Determination of development costs.--In the
case of a qualified residence described in clause (ii)
or (iii) of subsection (c)(1)(A), the reasonable
development costs and eligible development costs of
such qualified residence shall be an amount equal to
such costs, respectively, of the entire condominium or
cooperative housing property in which such qualified
residence is located, multiplied by a fraction--
``(i) the numerator of which is the total
floor space of such qualified residence, and
``(ii) the denominator of which is the
total floor space of all residences within such
property.
``(B) Tenant-stockholders of cooperative housing
corporations treated as owners.--In the case of a
cooperative housing corporation (as such term is
defined in section 216(b)), a tenant-stockholder shall
be treated as owning the house or apartment which such
person is entitled to occupy.
``(6) Related party sales not treated as affordable
sales.--
``(A) In general.--A sale between related persons
shall not be treated as an affordable sale.
``(B) Related persons.--For purposes of this
paragraph, a person (in this subparagraph referred to
as the `related person') is related to any person if
the related person bears a relationship to such person
specified in section 267(b) or 707(b)(1), or the
related person and such person are engaged in trades or
businesses under common control (within the meaning of
subsections (a) and (b) of section 52). For purposes of
the preceding sentence, in applying section 267(b) or
707(b)(1), `10 percent' shall be substituted for `50
percent'.
``(7) Inflation adjustment.--
``(A) In general.--In the case of a calendar year
after 2025, the dollar amounts in subsections
(b)(3)(A), (e)(3)(A)(i)(I), (e)(3)(A)(i)(II), and
(i)(2)(C) shall each be increased by an amount equal
to--
``(i) such dollar amount, multiplied by
``(ii) the cost-of-living adjustment
determined under section 1(f)(3) for such
calendar year by substituting `calendar year
2024' for `calendar year 2016' in subparagraph
(A)(ii) thereof.
``(B) Rounding.--
``(i) In the case of the dollar amounts in
subsections (b)(3)(A) and (i)(2)(C), any
increase under paragraph (1) which is not a
multiple of $1,000 shall be rounded to the
nearest multiple of $1,000.
``(ii) In the case of the dollar amount in
subsection (e)(3)(A)(i)(I), any increase under
paragraph (1) which is not a multiple of $0.01
shall be rounded to the nearest multiple of
$0.01.
``(iii) In the case of the dollar amount in
subsection (e)(3)(A)(i)(II), any increase under
paragraph (1) which is not a multiple of
$100,000 shall be rounded to the nearest
multiple of $100,000.
``(8) Report.--
``(A) In general.--The Secretary shall annually
issue a report, to be made available to the public,
which contains the information submitted pursuant to
subsection (f)(1)(G).
``(B) De-identification.--The Secretary shall
ensure that any information made public pursuant to
subparagraph (A) excludes any information that would
allow for the identification of qualified homeowners.
``(9) List of qualified census tracts.--The Secretary of
Housing and Urban Development shall, for each year, make
publicly available a list of qualified census tracts under--
``(A) on a combined basis, clauses (i) and (ii) of
subsection (c)(2)(A),
``(B) clause (iii) of such subsection, and
``(C) subsection (i)(5)(A).
``(10) Denial of deductions if converted to rental
housing.--If, during the 5-year period beginning immediately
after the affordable sale of a qualified residence referred to
in subsection (a), an individual who owns a qualified residence
(whether or not such individual was the purchaser in such
affordable sale) fails to use such qualified residence as such
individual's principal residence for any period of time, no
deduction shall be allowed for expenses paid or incurred by
such individual with respect to renting, during such period of
time, such qualified residence.
``(i) Application of Credit With Respect to Owner-Occupied
Rehabilitations.--
``(1) In general.--In the case of a qualified
rehabilitation by the taxpayer of any qualified residence which
is owned (as of the date that the written binding contract
referred to in paragraph (3) is entered into) by a specified
homeowner, the rules of paragraphs (2) through (7) shall apply.
``(2) Alternative credit determination.--In the case of any
qualified residence described in paragraph (1), the
neighborhood homes credit determined under subsection (a) with
respect to such residence shall (in lieu of any credit
otherwise determined under subsection (a) with respect to such
residence) be allowed in the taxable year during which the
qualified rehabilitation is completed (as determined by the
neighborhood homes credit agency) and shall be equal to the
least of--
``(A) the excess (if any) of--
``(i) the amounts paid or incurred by the
taxpayer for the qualified rehabilitation of
the qualified residence to the extent that such
amounts are certified by the neighborhood homes
credit agency (at the time of the completion of
such rehabilitation) as meeting the standards
specified pursuant to subsection (f)(1)(D),
over
``(ii) any amounts paid to such taxpayer
for such rehabilitation,
``(B) 50 percent of the amounts described in
subparagraph (A)(i), or
``(C) $50,000.
``(3) Qualified rehabilitation.--
``(A) In general.--For purposes of this subsection,
the term `qualified rehabilitation' means a
rehabilitation or reconstruction performed pursuant to
a written binding contract between the taxpayer and the
specified homeowner if the amount paid or incurred by
the taxpayer in the performance of such rehabilitation
or reconstruction exceeds the dollar amount in effect
under subsection (b)(3)(A).
``(B) Application of limitation to expenses paid or
incurred after allocation.--A rule similar to the rule
of section (b)(4) shall apply for purposes of this
subsection.
``(4) Specified homeowner.--For purposes of this
subsection, the term `specified homeowner' means, with respect
to a qualified residence, an individual--
``(A) who owns and uses such qualified residence as
the principal residence of such individual as of the
date that the written binding contract referred to in
paragraph (3) is entered into, and
``(B) whose family income (determined as of such
date) does not exceed the median family income for the
applicable area (with respect to the census tract in
which the qualified residence is located).
``(5) Additional census tracts in which owner-occupied
residences may be located.--In the case of any qualified
residence described in paragraph (1), the term `qualified
census tract' includes any census tract which--
``(A) meets the requirements of subsection
(c)(2)(A)(i) without regard to subclause (III) thereof,
and
``(B) is designated by the neighborhood homes
credit agency for purposes of this paragraph.
``(6) Modification of repayment requirement.--In the case
of any qualified residence described in paragraph (1),
subsection (g) shall be applied by beginning the 5-year period
otherwise described therein on the date on which the qualified
homeowner acquired such residence.
``(7) Related parties.--Paragraph (1) shall not apply if
the taxpayer is the owner of the qualified residence described
in paragraph (1) or is related (within the meaning of
subsection (h)(6)(B)) to such owner.
``(8) Pyrrhotite remediation.--The requirement of
subsection (c)(1)(D) shall not apply to a qualified
rehabilitation under this subsection of a qualified residence
that is documented by an engineer's report and core testing to
have a foundation that is adversely impacted by pyrrhotite or
other iron sulfide minerals.
``(j) Regulations.--The Secretary shall prescribe such regulations
as may be necessary or appropriate to carry out the purposes of this
section, including regulations that prevent avoidance of the rules, and
abuse of the purposes, of this section.''.
(b) Credit Allowed as Part of General Business Credit.--Section
38(b) of the Internal Revenue Code of 1986 is amended by striking
``plus'' at the end of paragraph (40), by striking the period at the
end of paragraph (41) and inserting ``, plus'', and by adding at the
end the following new paragraph:
``(42) the neighborhood homes credit determined under
section 42A(a).''.
(c) Credit Allowed Against Alternative Minimum Tax.--Section
38(c)(4)(B) of the Internal Revenue Code of 1986 is amended by
redesignating clauses (iv) through (xii) as clauses (v) through (xiii),
respectively, and by inserting after clause (iii) the following new
clause:
``(iv) the credit determined under section
42A,''.
(d) Basis Adjustments.--
(1) Energy efficient home improvement credit.--Section
25C(g) of the Internal Revenue Code of 1986 is amended by
adding after the first sentence the following new sentence:
``This subsection shall not apply for purposes of determining
the eligible development costs or adjusted basis of any
building under section 42A.''.
(2) Residential clean energy credit.--Section 25D(f) of
such Code is amended by adding after the first sentence the
following new sentence: ``This subsection shall not apply for
purposes of determining the eligible development costs or
adjusted basis of any building under section 42A.''.
(3) New energy efficient home credit.--Section 45L(e) of
such Code is amended by inserting ``or for purposes of
determining the eligible development costs or adjusted basis of
any building under section 42A'' after ``section 42''.
(e) Exclusion From Gross Income.--Part III of subchapter B of
chapter 1 of the Internal Revenue Code of 1986 is amended by inserting
before section 140 the following new section:
``SEC. 139J. STATE ENERGY SUBSIDIES FOR QUALIFIED RESIDENCES.
``(a) Exclusion From Gross Income.--Gross income shall not include
the value of any subsidy provided to a taxpayer (whether directly or
indirectly) by any State energy office (as defined in section 124(a) of
the Energy Policy Act of 2005 (42 U.S.C. 15821(a))) for purposes of any
energy improvements made to a qualified residence (as defined in
section 42A(c)(1)).''.
(f) Conforming Amendments.--
(1) Subsections (i)(3)(C), (i)(6)(B)(i), and (k)(1) of
section 469 of the Internal Revenue Code of 1986 are each
amended by inserting ``or 42A'' after ``section 42''.
(2) The table of sections for subpart D of part IV of
subchapter A of chapter 1 of such Code is amended by inserting
after the item relating to section 42 the following new item:
``Sec. 42A. Neighborhood homes credit.''.
(3) The table of sections for part III of subchapter B of
chapter 1 of such Code is amended by inserting before the item
relating to section 140 the following new item:
``Sec. 139J. State energy subsidies for qualified residences.''.
(g) Effective Date.--The amendments made by this section shall
apply to taxable years beginning after December 31, 2025.
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