The House passed The Tax Cuts and Jobs Act (H.R. 1) during a Thursday floor vote. The tax reform bill preserves the 9% Low Income Housing Tax Credit (LIHTC) but eliminates Tax-Exempt Private Activity Bonds as well as the 4% side of the LIHTC and furthermore eliminates both the Historic Tax Credit and New Markets Tax Credit. The end of this article provides detailed information for advocating on behalf of these programs.

Meanwhile, the Senate Committee on Finance approved a Manager’s Amendment package from Chairman Orrin Hatch (R-UT). The big development is inclusion of Senator Bill Cassidy’s (R-LA) amendment, The Historic Tax Credit Restoration Act, which retains the 20% rate for the Historic Rehabilitation Tax Credit, albeit with a modification for the credit to be earned over a 5-year period of time compared to collecting the credit in its entirety upfront. This change will slightly diminish the value of the credit, and there is potential for the demographics of investors to shift, as investors currently appreciate the short-sighted liability outlook that the current structure allows. Advocates see inclusion of Sen. Cassidy’s amendment as a big win compared to the prior proposed Senate plan to reduce the Historic Tax Credit rate from 20% to 10%; it’s also a major improvement over the House’s current language, which repeals the Historic Credit entirely.

The final Manager’s Amendment included language from this Tuesday’s modified chairman’s mark which added select measures from the Affordable Housing Credit Improvement Act (S.548). S. 548, in its entirety, would curb the devaluing effects to the housing credit caused by a 20% corporate rate (the current proposed rate in both the Senate and House bills). Many of the substantive changes from S. 548, however, are not included in the approved markup. The Senate language includes the following changes to the LIHTC:

  • Establishes a reconstruction/replacement period after a casualty loss before any determination of recapture is made.
  • Right of First Refusal: Right of first refusal is replaced with a purchase option which would not trigger any federal income tax benefit
  • Gives guidance on how state housing finance agencies should determine a community revitalization plan
  • Local Approval: QAPs may not consider local support or opposition as selection criteria, including local government contributions unless considered under a broader context of a project’s ability to leverage outside funding sources
  • QAPs required to have selection criteria considering the affordable housing needs of the state’s Indian tribe members
  • Rename the Low Income Housing Tax Credit the “Affordable Housing Tax Credit”

The proposal notably leaves out aspects of the Affordable Housing Credit Improvement Act including:

  • Increase the national credit allocation amount by 50%
  • Allow for income averaging in which tenants may earn up to 80% AMI as long as the average income of the project is 60% AMI
  • Create a permanent floor for the 4% credit

Other highlights of the Senate bill include:

  • Private Activity Bonds (PABs) are retained, preserving the 4% LIHTC tax exempt bond program.
  • The New Markets Tax Credit is retained without any changes.
  • The depreciation period for all residential and nonresidential real property is reduced to 25 years.
  • The corporate tax rate is reduced to 20% but delayed until 2019 (the HR 1 would implement a 20% corporate tax rate starting in 2018)

With the House’s bill passed, eyes will look to the Senate, with plans for a floor vote sometime after the Thanksgiving recess. It’s unclear how the bill will fare in the Senate, which also contains controversial legislation effectively repeal the individual mandate of the 2010 healthcare law (3 Republican senators ended the GOP’s hopes for repealing the healthcare law earlier this year).

 

ADVOCACY EFFORTS ARE NEEDED

Advocacy Needed in the Senate:

  • Thank them for retaining both the Housing Credit, Housing Bonds, and New Markets Tax Credits; and
  • Ask that they convey support for retaining the production power of the Housing Credit in a lower corporate rate environment. (Including S. 548 in its entirety would curb the negative effects a 20% corporate rate would have on the LIHTC.)

Advocacy Needed in the House:

While the House Bill has passed, many representatives have an understanding that changes will be made during conference committee negotiations when differences are ironed out between the House and Senate language. Urge your representatives to endorse the Senate’s language on keeping private activity bonds, improving the LIHTC, and retaining the HTC and NMTC. You can also ask representatives to at least publicly voice their concern about the impact of eliminating Private Activity Bonds as well as the NMTC and HTC.

Advocacy Resources:

NH&RA is working in partnership with the Rental Housing ACTION Campaign, the New Markets Tax Credit Coalition and the Historic Tax Credit Coalition to advocate on behalf of these critical resources. New resources have been added to the Advocacy Toolkit on the ACTION Campaign website to assist in your outreach efforts. These include:

Additional Resources relating to the NMTC and Historic Credits are also available: