S1824

An Act establishing a gross income tax credit for certain residential development and supplementing P.L.1983, c.530 (C.55:14K-1 et seq.) and Title 54A of the New Jersey Statutes.

Be It Enacted by the Senate and General Assembly of the State of New Jersey:

1. P.L. , c. (C. ) (pending before the Legislature as this bill) shall be known and may be cited as the "New Jersey Neighborhood Homes Investment Act."

2. As used in P.L. , c. (C. ) (pending before the Legislature as this bill):

"Affordable sale" means a sale of a qualified residence to a qualified homeowner that meets the standards established in subsection g. of section 3 of P.L. , c. (C. ) (pending before the Legislature as this bill).

"Agency" means the New Jersey Housing and Mortgage Finance Agency.

"Eligible purchaser" means a purchaser of a qualified residence who commits to owning and using the qualified residence as the purchaser’s principal residence, and whose household income, as determined on the date when a binding contract for the affordable sale of the residence is entered, is 140 percent or less of the median household income for the State.

"Project sponsor" means a taxpayer that finances a qualified project in compliance with the rules and regulations of the agency.

"Qualified census tract" means a census tract that meets the standards established pursuant to subsection f. of section 3 of P.L. , c. (C. ) (pending before the Legislature as this bill).

"Qualified project" means a project certified by the agency to consist of the construction or substantial renovation of one or more qualified residences.

"Qualified homeowner" means an individual who owns and uses a qualified residence as the individual’s principal residence, and whose household income, as determined on the date when a binding contract for the affordable sale of the residence is entered, is 140 percent or less of the median household income for the metropolitan statistical area of the individual’s principal residence.

"Qualified residence" means a residence that meets the standards established in subsection e. of section 3 of P.L. , c. (C. ) (pending before the Legislature as this bill), that are committed for affordable sale in accordance with the rules and regulations of the agency.

"Reasonable development costs" means the amounts incurred for the acquisition of buildings and land, construction, substantial rehabilitation, demolition, of structures, and environmental remediation, to the extent that the agency determines that these amounts meet reasonable standards that are necessary to ensure the financial feasibility of such qualified residence.

"Substantial rehabilitation" means a rehabilitation of a qualified residence for costs that exceed the greater of $20,000 or 20 percent of the amounts paid or incurred by the project sponsor for the acquisition of buildings and land with respect to the qualified residence, or other types of rehabilitations on qualified residences permitted by the rules and regulations of the agency.

3. a. A taxpayer who is a project sponsor for a qualified project shall be allowed a credit against the tax otherwise due for the taxable year under the "New Jersey Gross Income Tax Act," N.J.S.54A:1-1 et seq., in an amount, except as is otherwise provided in paragraphs (1) or (2) of this subsection, that shall be equal to the amount by which the reasonable development costs of the qualified project, as approved by the agency exceed the amount to be paid by a qualified homeowner in an affordable sale. In addition to the other limitations established by this subsection:

(1) the tax credit shall not exceed 35 percent of the lesser of: (a) the reasonable development costs, or (b) 80 percent of the median sales price for a new home in the State, as determined by the agency; and

(2) the agency shall adopt rules and regulations to establish an alternative calculation of the tax credit amount to be permitted for a substantial rehabilitation of a qualified residence that is owned by a qualified homeowner. This tax credit shall not exceed the amount by which the reasonable development costs of the substantial rehabilitation exceed the increase in the assessed value of the qualified residence that results from the substantial rehabilitation. The rules and regulations of the agency may allow the tax credit to the qualified homeowner directly in the case of a substantial rehabilitation if the household income of the qualified homeowner is no greater than 100 percent of the median household income of the metropolitan statistical area of the individual’s principal residence.

b. The order of priority of the application of the credit allowed pursuant to this section and any other credits allowed pursuant to the "New Jersey Gross Income Tax Act" N.J.S.54A:1-1 et seq. for a taxable year shall be as prescribed by the Executive Director of the agency. The amount of the credit applied pursuant to this section against the tax imposed for a taxable year, together with any other credits allowed by law, shall not reduce the tax liability to an amount less than zero. The amount of unused credit allowable pursuant to this section may be carried forward, if necessary, to the seven taxable years following the taxable year for which the tax credit is allowed.

c. A business entity that is classified as a partnership for federal income tax purposes shall not be allowed the credit directly, but the amount of credit of a taxpayer in respect of a distributive share of partnership income shall be determined by allocating to the taxpayer that proportion of the credit acquired by the partnership that is equal to the taxpayer’s share, whether or not distributed, of the total distributive income or gain of the partnership for its taxable year ending within or with the taxpayer’s taxable year. A taxpayer that is a New Jersey S corporation shall not be allowed the credit directly, but the amount of credit of a taxpayer in respect of a pro rata share of S corporation income shall be determined by allocating to the taxpayer that proportion of the credit acquired by the New Jersey S corporation that is equal to the taxpayer’s share, whether or not distributed, of the total pro-rata share of S corporation income of the New Jersey S corporation for its privilege period ending within or with the taxpayer’s taxable year.

d. A qualified project shall consist of either:

(1) the substantial rehabilitation of a qualified residence that is owned by a qualified homeowner;

(2) or the construction of a qualified residence to be purchased by an eligible purchaser in an affordable sale.

e. A residence may be included as a part of a qualified project if the residence:

(1) consists of real property affixed on a permanent foundation;

(2) consists of: (a) a building that is comprised of four or fewer residential units; (b) a condominium unit; or (c) a house or an apartment owned by a cooperative housing corporation;

(3) is located within the designated area of a qualified project with respect to which the agency has made an allocation; and

(4) is located in a qualified census tract.

f. For the purpose of determining a permissible location for a qualified project, a qualified census tract shall consist of:

(1) a census tract that: (a) has a median household income which does not exceed 80 percent of the median household income for the metropolitan statistical area of the census tract; (b) has a poverty rate that is not less than 130 percent of the poverty rate of the metropolitan statistical area of the census tract; and (c) has a median value for owner-occupied homes that does not exceed the median value for owner-occupied homes in the metropolitan statistical area of the census tract;

(2) satisfies other criteria that may be established pursuant to the rules and regulations of the agency.

g. A home sale shall satisfy the permitted conditions for an affordable sale if the sale is made to a qualified homeowner of a qualified residence that the agency certifies as meeting reasonable standards for a price that does not exceed the median household income of the county, by household size, multiplied by three. The acceptable prices for an affordable sales, by county and by household size, shall be determined by the agency, and shall be updated by the agency as appropriate.

h. When entering an affordable sale conducted pursuant to this section, the eligible purchaser shall certify an intention to reside in the home for no less than five years. If the qualified homeowner ceases to occupy the qualified residence as their principal residence:

(1) within one year of the date of affordable sale, the qualified homeowner shall pay to the agency 50 percent of the amount by which the price that the qualified homeowner sold the home for exceeds the affordable sales price; or, if the qualified homeowner has moved out but has not sold the home, 50 percent of the amount by which the updated assessed value of the home exceeds the affordable sales price;

(2) more than one year, but less than two years of the date of affordable sale, the qualified homeowner shall pay to the agency 40 percent of the amount by which the price that the qualified homeowner sold the home for exceeds the affordable sales price; or, if the qualified homeowner has moved out but has not sold the home, 40 percent of the amount by which the updated assessed value of the home exceeds the affordable sales price;

(3) more than two years, but less than three years of the date of affordable sale, the qualified homeowner shall pay to the agency 30 percent of the amount by which the price that the qualified homeowner sold the home for exceeds the affordable sales price; or, if the qualified homeowner has moved out but has not sold the home, 30 percent of the amount by which the updated assessed value of the home exceeds the affordable sales price;

(4) more than three years, but less than four years of the date of affordable sale, the qualified homeowner shall pay to the agency 20 percent of the amount by which the price that the qualified homeowner sold the home for exceeds the affordable sales price; or, if the qualified homeowner has moved out but has not sold the home, 20 percent of the amount by which the updated assessed value of the home exceeds the affordable sales price; and

(5) more than four years, but less than five years of the date of affordable sale, the qualified homeowner shall pay to the agency 10 percent of the amount by which the price that the qualified homeowner sold the home for exceeds the affordable sales price; or, if the qualified homeowner has moved out but has not sold the home, 10 percent of the amount by which the updated assessed value of the home exceeds the affordable sales price.

4. In order to receive the tax credit for reasonable development costs of qualified projects, allowed pursuant to section 3 of P.L. , c. (C. ) (pending before the Legislature as this bill), a taxpayer shall submit to the agency a certification, in a form provided by the Director of the Division of Taxation in the Department of the Treasury, that includes, at a minimum: (a) the amount of the tax credit approved as reasonable development costs pursuant to subsection a. of section 3 of P.L. , c. (C. ) (pending before the Legislature as this bill); (b) a copy of the certification of the qualified project; and (c) any other information as determined relevant by the division or requested by the agency.

5. On or before the first day of the fourth month next following the enactment of P.L. , c. (C. ) (pending before the Legislature as this bill), the Executive Director of the New Jersey Housing and Mortgage Finance Agency, in consultation with the Director of the Division of Taxation in the Department of the Treasury, shall adopt rules and regulations, pursuant to the "Administrative Procedure Act," P.L.1968, c.410 (C.52:14B-1 et seq.), to effectuate the provisions of P.L. , c. (C. ) (pending before the Legislature as this bill). The rules and regulations of the agency shall include, but shall not be limited to, restrictions, in addition to those expressly established by P.L. , c. (C. ) (pending before the Legislature as this bill), for what costs may be claimed as reasonable development costs. The Division of Taxation in the Department of Treasury shall also prepare the form described in section 4 of P.L. , c. (C. ) (pending before the Legislature as this bill) and make the form available on the department’s Internet website.

6. This act shall take effect on the first day of the fourth month next following enactment, except that the Executive Director of the New Jersey Housing and Mortgage Finance Agency and the Director of the Division of Taxation in the Department of Treasury may take such anticipatory action as may be necessary to implement the provisions of this act.

STATEMENT

The "New Jersey Neighborhood Homes Investment Act," establishes a gross income tax credit for certain residential developments. This bill is intended to complement the federal Low Income Housing Tax Credit program, which supports affordable rental housing, but is not designed to facilitate the construction or rehabilitation of owner-occupied homes.

The bill would authorize a project sponsor, who is financing the construction or substantial renovation of one or more qualified residences, to obtain a credit against taxes otherwise due under the gross income tax. The tax credit would be in an amount equaling the amount by which the reasonable development costs of the qualified project exceed the amount to be paid by a qualified homeowner in an affordable sale. However, the bill also prohibits the tax credit from exceeding 35 percent of the lesser of the total reasonable development costs, or 80 percent of the median sales price for a new home in the State. Further, the bill also directs the New Jersey Housing and Mortgage Finance Agency (HMFA) to adopt rules and regulations to establish an alternative calculation of the tax credit amount to be permitted for a substantial rehabilitation of a home already owned by a qualified homeowner. In this circumstance, the credit is not to exceed the amount by which the reasonable development costs of the substantial rehabilitation exceed the increase in the assessed value of the home that results from the substantial rehabilitation.

Under the bill, a qualified project consists of either: (1) the substantial rehabilitation of a qualified residence that is owned by a qualified homeowner, as defined in the bill; or (2) the construction of a qualified residence to be purchased by an eligible purchaser in an affordable sale. A sale qualifies as affordable if the sale does not exceed the median household income of the county, by household size, multiplied by three. Under the bill, an eligible purchaser or qualified homeowner is required to have a household income of 140 percent, or less, of the median household income for the State.

The bill permits a residence to be included as a part of a qualified project if the residence:

· consists of real property affixed on a permanent foundation;

· consists of: (1) a building that is comprised of four or fewer residential units; (2) a condominium unit; or (3) a house or an apartment owned by a cooperative housing corporation;

· is located within the designated area of a qualified project for which HMFA has made an allocation; and

· is located in a qualified census tract, as defined in the bill.

When entering an affordable sale conducted in compliance with the bill, the bill requires an eligible purchaser to certify an intention to reside in the home for no less than five years. If the qualified homeowner moves out before these five years are completed, then, depending on how close to five years the homeowner came to residing in the home, the bill requires the homeowner to pay HMFA a penalty of between 10 percent and 50 percent of the amount by which the price that the qualified homeowner sold the home for exceeds the initial affordable sales price, or, if the qualified homeowner has moved out but has not sold the home, between 10 percent and 50 percent of the amount by which the updated assessed value of the home exceeds the initial affordable sales price.

The bill directs the Executive Director of HMFA to adopt rules and regulations, in consultation with the Director of the Division of Taxation in the Department of the Treasury, on or before the first day of the fourth month following enactment. The bill takes effect on the first day of the fourth month following enactment.