The U.S. Congress is currently considering the “Revitalizing Downtowns and Main Streets Act” (the “Act”), legislation aiming to address changes in the post-pandemic real estate market and the nationwide affordable housing shortage.
The proposed Act, introduced July 11, seeks to increase the supply of affordable housing while revitalizing city centers, urban areas, and rural communities by incentivizing the conversion of vacant and underutilized commercial properties into affordable housing through a temporary investment tax credit for qualified conversions.
Key Provisions
To spur the growth of affordable housing, the Act introduces a 20% investment tax credit for costs associated with converting non-residential buildings into housing. Additional bonus tax credits are available for specific projects:
- A 30% tax credit is available for conversions in low-income census tracts or difficult development areas, provided that 20% of the units are reserved for individuals earning below 60% of the area median income.
- A 35% tax credit on the first $2 million of qualifying expenditures is available for historic preservation projects in rural areas.
The tax credits are transferable, allowing real estate investment trusts (REITs) and nonprofit housing providers to utilize them, facilitating external financing for eligible projects.
Eligibility Criteria
To be eligible for tax credits under the Act, buildings must be at least 20 years old at the start of the conversion, and conversion costs must exceed 50% of the building’s adjusted basis, excluding acquisition costs. Furthermore, at least 20% of the residential units must be reserved for individuals earning 80% or less of the area median income.
Opportunities for Developers and Investors
This Act presents a substantial opportunity for developers and investors to address housing shortages while revitalizing vacant or underutilized commercial properties. By taking advantage of the tax credits, stakeholders can reduce their financial burden and enhance project feasibility.
