Housing Bill Doubles Home Sale Tax Exclusion to $1M, Ties Zoning Reform to Federal Grants, and Penalizes Cities for 'Squatting'

The new Revitalizing America’s Housing Act is a massive, multi-faceted bill that touches everything from tax breaks for home sellers to how cities manage zoning and squatting. It’s a classic kitchen-sink bill designed to boost housing supply and affordability, but it comes with some serious strings attached for local governments and some big tax breaks for investors.

The $1 Million Tax Break: Cashing Out Your Equity

Let’s start with the biggest change for long-term homeowners. If you’ve lived in your primary home for a while, you know the capital gains exclusion is a big deal. Currently, single filers can exclude $250,000 of profit from federal taxes when they sell, and married couples can exclude $500,000. This bill doubles those limits to $500,000 for singles and $1,000,000 for married couples (Sec. 105). This change applies to sales after the Act becomes law. For a couple who bought their first house 20 years ago and saw its value skyrocket, this is huge. It means they can move, downsize, or relocate without losing a massive chunk of their hard-earned equity to the IRS. It also includes an inflation adjustment starting in 2024, so the benefit won't immediately erode.

Zoning Reform: Follow the Federal Money

For local governments, Title I introduces a major incentive—or perhaps a mandate—around zoning. To receive Community Development Block Grant (CDBG) funds, cities and counties now have to submit a plan at least every five years detailing how they are addressing restrictive land use policies (Sec. 104). This isn't just a suggestion; the bill specifically lists policies they must report on, like allowing duplexes/triplexes in single-family zones, reducing minimum lot sizes, allowing manufactured homes, and eliminating minimum parking requirements. If you live in a city struggling with housing costs, this provision is designed to force local officials to cut the red tape that makes it impossible to build starter homes or denser housing near transit. While the bill doesn't force them to implement the reforms, it forces them to publicly detail their plans for doing so, making inaction much harder to hide.

Tax Breaks for Investors and Builders

Two major tax provisions target investment. First, the bill expands the Opportunity Zone tax break to include “qualifying ordinary income,” not just capital gains (Sec. 102). This means that after 2026, business owners or high-income earners could defer taxes on regular income by investing it in Qualified Opportunity Funds. This significantly broadens the appeal of these funds, potentially unlocking more money for development, but it also raises questions about whether these tax breaks truly benefit distressed communities or just become another shelter for the wealthy.

Second, the bill creates the Neighborhood Homes Credit (Sec. 207). This is a new tax credit designed to encourage builders and investors to construct or substantially renovate homes in targeted, lower-income areas and sell them affordably. The credit covers the difference between the development cost and the affordable sale price. For example, if it costs $300,000 to build a home and it’s sold affordably for $250,000, the builder can claim a tax credit for the $50,000 gap. The catch? If the qualified homeowner sells the house within five years, they have to repay a portion of the original credit, creating a potential financial burden for the new owner if they need to move due to job loss or emergency.

Targeting Relief for First Responders and Veterans

The bill carves out specific relief for essential workers and veterans. Full-time police, firefighters, and EMTs living in assisted housing will now have their rent calculated differently, potentially resulting in a lower payment (Sec. 202). Furthermore, VA disability compensation is now excluded when calculating income eligibility for low- and moderate-income housing programs (Sec. 205). This is a critical change. Previously, a veteran receiving service-connected disability pay might have been pushed over the income limit for affordable housing, forcing them to choose between their earned benefits and housing assistance. Now, that money won't count against them.

The Squatting Hammer: A New Federal Mandate

Title IV introduces one of the most punitive and controversial provisions. Section 406 defines squatting as residing in a property for 14 or more consecutive days without permission or a rental agreement. The bill mandates that HUD create rules to cut off CDBG funds to any local government that allows squatting or grants squatters tenancy rights. Even more drastically, if a local government loses its CDBG funds for this reason, no federal support (FHA, VA, USDA, Fannie/Freddie) can be given for any mortgage on a 1-to-4-family home in that jurisdiction. This is a massive federal stick aimed at forcing local police and courts to rapidly remove anyone who meets this 14-day definition, and it could severely impact the local housing market if federal loan support is suddenly withdrawn.

Hidden Regulatory Shifts

Beyond the headlines, the bill contains two significant regulatory changes: First, the Department of Energy is blocked from finalizing or enforcing any new energy conservation standards for manufactured housing (Sec. 209). This removes a layer of consumer and environmental protection for the manufactured housing sector. Second, the bill caps and delays new efficiency standards for certain types of transformers for up to 10 years (Sec. 103). While this is framed as supply chain relief, it effectively locks in lower energy efficiency standards for a decade, which could increase long-term energy costs for utility providers and, eventually, consumers.

Oversight and Accountability

Title IV also beefs up federal oversight. The HUD Secretary, the HUD Inspector General, and the heads of Ginnie Mae and other mortgage agencies must now testify annually before Congress on the financial health and management of their programs (Sec. 401, 402). This is a direct response to past criticisms about lack of accountability. Furthermore, the bill mandates studies on the proximity of housing to Superfund sites (Sec. 301) and requires major agencies to conduct comprehensive research on the health effects of indoor residential mold (Sec. 304), leading to public mapping of mold hotspots. This means tenants in subsidized housing should see better tracking and, eventually, better standards for health and safety issues like lead and mold.