Tax Incentives for Affordable Rental Housing Preservation

BACKGROUND

As Congress begins debate on major tax legislation, affordable rental housing preservation should be a key component of a final bill.

Housing advocates are rallying behind a boost in the low income housing tax credits (LIHTC), which is increasingly used to build new affordable rental homes. Such a provision should be complemented by tax incentives to generate funds to rehabilitate, renovate and preserve our existing stock of aging affordable rental housing. By preventing the loss of affordable rental homes, at a lower cost than building new rental homes, the HOPE Act would tap private sector individual investments to increase the supply of housing and ensure that low income families live in safe, decent housing.

HOPE ACT PRESERVATION TAX PROVISIONS

The “Housing Opportunities and Preservation Enhancement Act of 2025” would preserve aging affordable rental housing properties, by creating tax incentives for individual investors that fund rehabilitation and preservation of existing affordable rental housing:

Preservation tax benefits are limited to the preservation of affordable rental housing, as follows:

• Owner must be a qualified nonprofit, public housing agency, state or local government, or tribal housing agency.

• Must have 20-year use restriction under which rental homes remain affordable to low-income families.

• Property must have been constructed at least 15 years ago.

• Renovation costs must exceed the greater of 20% of the initial property cost or $20,000/unit (adjusted annually for inflation).

Qualified investments in qualified properties are eligible for the following tax treatment:

• Narrow exemption from the passive loss restrictions in Section 469 of the Internal Revenue Code (IRC).

• Exemption from the profit motive requirements in Sections 162, 183, and 212 of the IRC.

• Capital gains exclusion for a 10-year + investment and transfer of partnership interest to an eligible non-profit.

• Accelerated depreciation for rental housing (15 years).

• Expensing for 15-year or less property under Section 168(k) of the IRC.

• Federal/state/local government rehab grants used to help finance renovation excluded from taxable income and do not reduce depreciable basis.

• Energy incentives – including the Section 45L energy efficient home credit, the Section 179D energy efficient commercial buildings deduction, and the renewable energy investment tax credit, typically used to finance solar panels also do not reduce depreciable basis, similar to current law for the low-income housing tax credit.