New Tax Breaks for Turning Old Offices into Homes: Up to $200K Per Unit, Plus Bonuses for Affordable Housing

The INCREASE Housing Affordability Act is all about turning empty office buildings into much-needed housing. It does this by offering some serious tax breaks to developers who take on these conversion projects. Think of it as a financial nudge to get those vacant spaces filled with people, not just cubicles.

Real-World Incentives

The core of the bill is a new tax credit—the "commercial-to-residential credit." Developers can get a credit equal to 15% of their "qualified conversion expenditures," which are basically the costs of turning an office building into apartments or condos. There are limits, of course: up to $200,000 per new housing unit and a maximum of $10,000,000 per building (Section 2). So, if a developer spends $1 million renovating an old office and creates 10 apartments, they could get a $150,000 tax credit (15% of $1 million), assuming it fits within the per-unit and per-building caps.

But here's where it gets interesting. There are bonus credits if the developer makes some of those new apartments affordable. If at least 25% of the units are rented to people making no more than 100% of the area's median income, the credit jumps by 10%. That bonus goes up to 20% if those units are for folks making 60% or less of the area median income (Section 2). For example, a developer in a city with a median income of $60,000 could qualify for the 20% bonus by renting at least a quarter of their units to tenants earning $36,000 or less. There's also a 15% bonus credit for paying construction workers the local prevailing wage (Section 2). These bonuses are designed to make sure this isn't just about luxury condos.

Making Conversions Happen

To qualify, the building has to have been used as office space and be at least 15 years old before the conversion starts (Section 2). The renovation has to be substantial, too—meaning the costs over a 24-month period have to be more than either the building's adjusted basis (basically, its original cost minus depreciation) or $15,000, whichever is greater (Section 2). This is to prevent someone from just slapping some paint on the walls and calling it a conversion.

Beyond the tax credits, the bill sets up an advisory board within a year of the Act's enactment. This board, run by the Secretary of Housing and Urban Development, will have at least 20 members and is supposed to help state and local housing agencies figure out which buildings are good candidates for conversion, speed up the permitting process, and even suggest changes to local zoning laws to make these projects easier (Section 3). They're also tasked with finding other funding sources for these conversions. The bill authorizes $5,000,000 per year from 2025 through 2029 to run this board (Section 3). These funds are designed to offer states and cities expertise and resources to make these conversions happen, not just to hand out cash for the projects themselves.

Potential Pitfalls

While the bill's all about boosting housing, there are things to watch. Developers could try to game the system, claiming the tax credit without really creating affordable housing, or inflating "qualified conversion expenditures." The advisory board, while intended to help, could end up being swayed by industry interests. And, without careful oversight, projects might end up focusing on high-end conversions, leaving the affordability issue untouched. Plus, there's always the risk that the prevailing wage bonus could be bypassed through some creative accounting with worker classifications. It’s important to make sure the incentives are actually leading to more affordable homes, and not just bigger profits for developers.