Sen. Ron Wyden, D-Ore., the ranking Democrat on the Senate Finance Committee, released draft legislation Thursday to provide tax credits to encourage the development of affordable rental housing for the middle class.

The proposed Middle-Income Housing Tax Credit would work in conjunction with the Low-Income Housing Tax Credit, which Wyden recently introduced legislation to revive for new homebuyers (see Senator Seeks to Revive First-Time Homebuyer Tax Credit). The LIHTC for low-income taxpayers dates back to 1986 and was revived in the wake of the financial crisis to spur the depressed housing market. It was available for homes purchased after April 8, 2008, and before July 1, 2009 for 10 percent, up to a maximum of $7,500, as part of the Housing and Economic Recovery Act of 2008. The credit was later extended twice by Congress for homes purchased in 2009 and 2010, with the maximum amount of the credit increasing to $8,000. While it is not currently available for new homes, taxpayers who acquired homes in those years can still qualify for the tax credit. Wyden hopes to revive the LIHTC for new low-income homebuyers and introduce the MIHTC for the middle class.

Patterned after the LIHTC, the new MIHTC for middle-income taxpayers would allocate funds to states based on their population. State housing authorities would then have to follow a competitive process to allocate the tax credits to developers for individual projects, whether new construction or renovations.

“In my state and nationwide, affordable housing is key to climbing the ladder of economic mobility,” Wyden said in a statement. “The bottom line: America’s housing policy needs a remodel. It should start by using proven tools to develop new homes for Americans earning low and moderate incomes. This new tax credit will work hand-in-hand with the tax credit for low-income housing, which has been a huge success for decades.”

Under the bill, the federal government would allocate tax credits to states based on their population. For 2017, the allocation would be $1 per capita, with a $1.14 million minimum for small states, and state housing authorities would then allocate the tax credits to developers via a competitive process. The tax credits would be provided to developers over a 15-year period. The credit amount would equal 50 percent of the present value of the qualifying costs, or 5 percent per year on an undiscounted basis. State housing authorities would only allocate enough credit to make a housing project feasible.

To fit the new MIHTC program to the varied needs of cities across the U.S., the qualification standards for the MIHTC would be tailored to fit local economies and incomes. Tenants’ rents in the MIHTC properties would not exceed 30 percent of Area Median Gross Income, or AMGI, a figure calculated by the Department of Housing and Urban Development that takes local economic factors into account.

The MIHTC would also require at least 60 percent of a property’s units to be occupied by individuals or families with incomes between 60 and 100 percent of the AMGI. That would align the new tax credit with LIHTC, which caps the incomes of those in qualifying projects at 60 percent of AMGI. To keep the MIHTC program from discouraging investment in low-income housing, a state’s unused MIHTC dollars would be returned to an existing pool of funding for the LIHTC.

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