Welch bill targets taxes on affordable housing grants

What the bill would change

U.S. Sen. Peter Welch, D-Vermont, has introduced the Supporting Small Affordable Housing Developers Act, a bill aimed at reducing federal tax costs for small and rural housing developers.

The measure would exempt grants supporting affordable housing development from federal income tax. It also would exempt income from the sale of transferable state tax credits from federal taxation. The proposed changes are intended to let developers use more grant and tax-credit proceeds for construction rather than federal tax payments.

Welch, the ranking member of the Senate Agriculture Subcommittee on Rural Development, Energy, and Credit, said taxing grants spent on construction can make rural affordable housing projects financially unworkable.

A Vermont development behind the proposal

Welch pointed to Village Ventures, a Vermont developer that received in federal grant funding in 2022 to help create six permanently affordable homes in Bradford. The company invested about in the property and faced more than in income taxes on the grant.

The completed building was appraised at leaving Village Ventures with an estimated loss of about. Principal Jonah Richard said the company had to borrow money, backed by his personal guarantee, to pay the federal tax bill.

Vermont’s housing pressures

Vermont’s median home sale price has increased 40% since 2019. Nearly 4,000 Vermonters face homelessness, and the state is projected to need between 24,000 and 36,000 additional homes by 2030 to replace older housing and meet demand.

Higher labor and material costs have also made affordable housing construction more difficult. The legislation now begins the congressional process; enactment would require approval by both chambers and the president’s signature.