The Neighborhood Homes Investment Act aims to address the national housing shortage and promote homeownership in distressed communities by establishing a new federal tax credit. Congress finds that a "value gap" often prevents housing development and rehabilitation in these areas, disproportionately impacting low-income communities. The bill seeks to close these financing gaps, thereby increasing the supply of quality, affordable starter homes and fostering neighborhood stability.

The core of the bill is the Neighborhood Homes Credit, which provides a tax credit to developers or rehabilitators of qualified residences. The credit amount is calculated as the lesser of the difference between reasonable development costs and the sale price (up to 120% if needed), 40% of eligible development costs, or 32% of the national median sale price for new homes. To qualify, a residence must be a house (up to 4 units), condominium, or cooperative unit, located within a qualified census tract, and part of a project allocated credits by a state agency.

An affordable sale is defined as a sale to a qualified homeowner whose family income is 140% or less of the area median, at a price not exceeding four times the area median family income (with adjustments for multi-unit homes). State-designated Neighborhood Homes Credit Agencies are responsible for allocating these credit amounts to qualified projects through a qualified allocation plan. These agencies must establish standards for development costs and construction quality, and provide annual reports to the Treasury Secretary.

A special provision allows for credits for the rehabilitation of existing owner-occupied homes, with specific criteria for specified homeowners whose income is at or below the area median. To ensure long-term affordability and prevent speculation, the bill includes a repayment mechanism: if a qualified residence is sold within five years of its affordable sale, the seller must repay a portion of the gain to the state agency, which then uses these funds for other qualified projects. The agency can waive this repayment in cases of hardship, such as divorce or disability.

The credit is integrated into the general business credit and can be applied against the alternative minimum tax, broadening its utility. The bill also excludes state energy subsidies for qualified residences from gross income, further incentivizing energy efficiency in affordable housing. These amendments will apply to taxable years beginning after December 31, 2025, aiming to stimulate revitalization efforts in underserved areas.