Representative Mike Carey (R-OH-15) introduced the Housing Opportunities and Preservation Enhancement (HOPE) Act on July 2, which would create new tax incentives targeted to individual investors that encourage the renovation and rehabilitation of existing rental properties for preservation as affordable housing.
The legislation would require at least 70% of incentivized units to be rent-restricted for families making 80% or less of the local area median income.
Go Deeper:
- Only tax-exempt entities would be eligible for incentives, including qualified nonprofits, public housing agencies, state or local governments, or tribal housing agencies.
- Properties would need to be at least 15 years old.
- Owners must commit to maintaining 80% AMI affordability for an additional 20 years.
- Renovation costs would have to exceed 20% of the property’s original acquisition cost, or total at least $20,000 per home, subject to annual change based on inflation.
- Qualified buyers would be offered right of first refusal at below-market prices and would subject investors to narrow exemptionsfrom standard passive activity loss and profit-motive restrictions.
- Investors would be subject to a narrow exception to the passive activity restrictions under Internal Revenue Code (IRC) Section 469, an opportunity to offset passive income with losses from qualified properties.
- The bill provides a capital gains exclusion on those holding investments for at least 10 years, including when transferring partnership interests to eligible nonprofits. The bill also provides rental housing structures accelerated depreciation over 15 years, and the exclusion of federal, state and local rehabilitation grants from taxable income–without reducing the depreciable basis.
Novogradac estimates a range of 250,000 to 333,000 affordable rental homes could be preserved over 10 years if the incentives provided through the HOPE Act are implemented.
