H.R. 4352 — HOMES Act

This section disallows the deduction under Internal Revenue Code (IRC) section 163 for interest paid or accrued by a disqualified single family property owner in connection with single family residential rental property owned directly or indirectly by such owner. A disqualified single family property owner is any taxpayer owning 50 or more such properties in a taxable year (applying aggregation rules under IRC sections 52 and 414, with modifications); single family residential rental property generally means residential rental property (as defined in IRC section 168(e)(2)(A)) with four or fewer dwelling units, excluding (1) property for which the low-income housing tax credit is allowed under IRC section 42 or (2) property constructed by the taxpayer or first occupied after construction while owned by the taxpayer. The disallowance does not apply to interest in the taxable year the property is sold to (1) an individual for use as a principal residence (within the meaning of IRC section 121) or (2) a qualified nonprofit organization (i.e., a not-for-profit entity with a principal purpose of creating, developing, or preserving affordable housing, including community development corporations, community housing development organizations, community-based development organizations, land banks, resident-owned cooperatives or community land trusts, and subsidiaries of public housing agencies). (Thus, the provision targets large-scale owners of small rental properties, such as institutional investors.) The section also amends IRC section 263A(f)(2) to apply the disallowance to capitalized interest amounts and directs the Secretary of the Treasury to issue related regulations.

This section disallows the depreciation deduction under IRC §167 for single family residential rental property owned by a disqualified single family property owner (as defined in IRC §163(n)), for property placed in service in taxable years beginning after enactment. The disallowance does not apply to any allowable depreciation deduction in the taxable year of sale to an individual for use as that individual's principal residence (per IRC §121) or to a qualified nonprofit organization (as defined in IRC §163(n)(2)(C)).