Commercial-to-Residential Tax Credit

Summary#

This bill creates a new federal tax credit to encourage converting underused office buildings into housing. It offers a credit equal to 15% of qualified conversion costs, with per-unit and per-building caps, and adds bonuses for projects that provide affordable rental units or pay prevailing wages. It also requires HUD to set up an advisory board to help state and local housing agencies identify and carry out conversion projects.

• Main change: A new commercial-to-residential tax credit (15% of qualified conversion expenditures).
• Limits: Credit capped at $200,000 per new housing unit and $10,000,000 per building.
• Bonuses: Extra credit if at least 25% of units are rent-restricted for lower-income tenants (up to +10–20%) and a +15% bonus if prevailing wages are paid during conversion.
• Other rules: The building must have been an office for lease, in service at least 15 years, and be “substantially converted” (large construction expense tests). Acquisition costs and enlargements are not eligible.
• HUD action: HUD must create an advisory board to help state and local agencies with conversions. Congress authorizes $5 million per year for fiscal years 2025–2029 to run the board.

What it means for you#

• Property owners and developers

  • May get a tax credit equal to 15% of eligible construction and improvement costs for converting older office buildings to housing.
  • Face limits: up to $200,000 per new unit and up to $10 million per building.
  • Can get extra credit if they include rent-restricted units or pay prevailing wages.
  • Cannot claim the credit for the cost of buying the building or for enlarging it.

• Workers and contractors

  • Projects that pay prevailing wages (as defined by federal Davis-Bacon rules) can receive a 15% bonus on the credit.
  • This could raise labor costs on some projects that want the bonus.

• People seeking affordable housing

  • Projects that set aside at least 25% of units as rent-restricted and serve tenants at specified income limits (100%, 80%, or 60% of area median income) can earn larger credits. This could increase the number of mixed-income or subsidized units in some projects.
  • The bill uses rules like those in the existing low-income housing tax credit to define rent limits and treatment of tenant income changes.

• State and local governments

  • HUD will offer an advisory board to provide technical help, feasibility analysis, permitting advice, and guidance on removing zoning barriers.
  • Local permitting or zoning processes may be targeted for faster review, if local governments choose to act on the advice.

• HUD and federal agencies

  • HUD must create and run a 20+ member advisory board within one year of enactment.
  • HUD will receive up to $5 million per year (FY2025–2029) to fund the board.

• Taxpayers

  • Federal tax revenue could decrease because of the new credit. The bill does not include a federal cost estimate in the provided text.

Expenses#

The bill authorizes funding for HUD advisory work, but a full fiscal estimate for the tax credit is not provided in the bill text.

• Estimated HUD appropriation: $5,000,000 per year for each fiscal year 2025 through 2029.
• No federal cost estimate or budget score for the tax credit is included in the supplied material.
• The tax credit will reduce federal revenue to some degree; the size of the reduction is not specified.
• There may be compliance and administrative costs for taxpayers and the IRS to apply, certify, and monitor eligibility, but no estimate is given.
• Local governments may face costs or lost fees if they change permitting or zoning processes; no estimate is provided.

No publicly available information on overall fiscal impact beyond the HUD appropriation.

Proponents' View#

The bill's text and title indicate goals and benefits that supporters may emphasize.

• The bill appears intended to increase housing supply by turning underused office space into homes.
• It could be seen as encouraging projects that produce affordable rental units by increasing credits for projects that reserve units for lower-income tenants.
• The prevailing wage bonus could be viewed as supporting fair pay for construction workers while promoting conversions.
• The HUD advisory board is designed to give technical help to state and local agencies, which could speed up feasible projects and lower local planning barriers.
• By excluding acquisition costs and focusing on conversion work, the credit targets construction and rehabilitation activity rather than real estate purchases.

Opponents' View#

The bill text raises several possible concerns or trade-offs.

• One concern is that the bill does not include a fiscal estimate for the tax credit, so the total cost to federal revenue is unclear.
• The credit may be complex to administer. Taxpayers and the IRS will need rules, certifications, and oversight to verify eligibility, affordable unit compliance, and prevailing-wage claims.
• The per-unit and per-building caps may not cover high conversion costs in expensive markets, which could limit the number of projects in those areas.
• Requiring straight-line depreciation and excluding acquisition costs could make some conversions less financially attractive.
• It is unclear how well the credit will ensure long-term affordability. The bill ties rent-restriction rules to existing low-income housing rules, but the duration and enforcement details of affordability are not fully described in the bill text.
• The prevailing-wage bonus could increase project costs and affect which contractors are chosen, possibly favoring unionized labor markets.
• The HUD advisory board is funded at $5 million per year, but the bill does not detail how its advice will be enforced or how quickly local regulations would change in response.

What is unclear: The bill sets many eligibility rules, but it leaves detailed procedures to future IRS or HUD regulations. The overall budgetary impact and how state and local governments will respond are not specified in the provided material.