H.R. 2854

[Congressional Bills 119th Congress]
[From the U.S. Government Publishing Office]
[H.R. 2854 Introduced in House (IH)]

<DOC>

119th CONGRESS
1st Session
H. R. 2854

To amend the Internal Revenue Code of 1986 to establish a tax credit 
for neighborhood revitalization, and for other purposes.

_______________________________________________________________________

IN THE HOUSE OF REPRESENTATIVES

April 10, 2025

Mr. Kelly of Pennsylvania (for himself, Mr. Larson of Connecticut, Mr. 
Carey, Ms. Sewell, Mr. Buchanan, Mr. Davis of Illinois, Mrs. Miller of 
West Virginia, Mr. Panetta, Mr. Feenstra, Mr. Kustoff, Ms. Malliotakis, 
and Mr. Moran) introduced the following bill; which was referred to the 
Committee on Ways and Means

_______________________________________________________________________

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) provide 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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