Homeownership development tax credit

The homeownership development tax credit has the potential to stimulate the production of homes for low- and moderate-income homebuyers. It could be modeled after the Low Income Housing Tax Credit currently used for the development of rental properties.

For what are these tax credits used?
In many low-income communities, the costs of construction or rehabilitation exceed the market value of new homes. A tax credit of this kind could finance the gap and provide an incentive for homebuilders to build for low- and moderate-income homebuyers.

A homeownership development tax credit would provide each state with an annual allocation of credit authority at a designated amount per capita. The state could then award credits to developers under a competitive process. Developers who receive credit allocations will sell them to investors and use the proceeds to bridge the gap between the development cost and sales prices of the homes they develop. A designated percentage of acquisition and development costs for either new construction or substantial rehabilitation could be covered by the tax credit allocations.

Additional recommendations for a homeownership development tax credit:

• Make the tax credit available for single family homes, condominiums, and cooperatives.
• Designate census tracts of area median incomes to measure eligibility for the tax credit.
• Allow rural areas and federally recognized Indian tribes to be eligible for the program.
• Require that buyers’ incomes do not exceed 80 percent of area median income.