US SB1686

Creates a new federal tax credit for building or substantially rehabilitating owner-occupied homes in distressed communities, with the credit covering the gap between development costs and sale price (up to 40% of eligible development costs or 32% of national median new home sale price)

Targets qualified census tracts meeting specific criteria including median family income at or below 80% of area median, poverty rates at least 130% of area levels, and home values at or below area median

Establishes annual state allocations of $9 per capita (minimum $12 million per state) with a 3-year carryforward for unused amounts, administered by state-designated neighborhood homes credit agencies

Limits eligible homebuyers to those with family income at or below 140% of area median, with maximum sale prices capped at 4 times the area median family income for single-family homes

Requires 5-year owner-occupancy with graduated repayment provisions if the home is sold early (50% of gains in year 1, reduced by 10 percentage points annually), and applies to taxable years beginning after December 31, 2025