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NALHFA Legislative Victory: Affordable Housing Tools Preserved in the Final Version of the Tax Cuts and Jobs Act

Posted By Administration, Monday, December 18, 2017

Late last week, the House and Senate conference committee revealed their conference report on the Tax Cuts and Jobs Act. The conference committee was charged with reconciling the differences between the House and Senate versions of the legislation. The legislation will come to a vote in both chambers early this week. Private Activity Bonds, the Housing Credit and other affordable housing tools were preserved in the legislation, providing a huge win for local housing finance agencies. The full text of the conference report can be viewed here.

There are several provisions of the legislation that will have an impact on the affordable housing industry. Below is a breakdown of the final provisions.

  • Retention of private activity bonds (PABs), including multifamily Housing Bonds, which trigger the “4 percent” Low-Income Housing Tax Credit (Housing Credit). No changes were made to PABs despite rumors that House Ways and Means Committee Chairman, Kevin Brady (R-TX) wanted to limit the use of this important tool.
  • The top corporate tax rate is lowered from 35 percent to 21 percent, effective January 1, 2018. This will have a considerable impact on the value of the Housing Credit as investors will not be willing to pay as much for the credits if their tax liability is lowered.
  • The Housing Credit is retained with no modifications . Previously, an amendment offered by Senator Pat Roberts (R-KS) would have replaced the existing Housing Credit exception for the general public use requirement for artist housing with one for veterans. Additionally, the amendment would have given rural areas a basis boost and reduced the maximum basis boost for all types of boost-eligible developments from 130 to 125 percent. This amendment was included in the final Senate version of the legislation, but was removed in the final bill.
  • Retention of the Mortgage Credit Certificate (MCC). The House-passed legislation repealed MCCs which would have been detrimental to families trying to afford a home. Housing Finance Agencies have helped hundreds of thousands of homebuyers by converting some of their bond authority to MCCs which provide the homebuyer with a federal tax credit for interest paid on their mortgage. The final version of the legislation retains this essential affordable housing tool.
  • Preservation of the New Markets Tax Credit (NMTC), which is currently authorized through 2019.
  • Preservation of the Historic Rehabilitation Tax Credit (HTC), and extends the credit period from one to five years.
  • Creation of a base erosion and anti-abuse tax (BEAT). This would affect banks’ ability to use the Housing Credit and other credits to offset some taxes related to foreign earnings and earning going to foreign parent companies. The Senate-passed version of the legislation would have only allowed the Research and Development Credit to be taken against the BEAT. The final version of the bill, however, also exempts the Housing Credit at 80 percent of the value of the credits. The NMTC and HTC are not allowable credits to be taken against the BEAT.
Republican leadership estimates that they have the required votes to pass the final legislation in both the House and the Senate. Thank you to all the NALHFA members who fought to preserve these important tools. While there are still provisions of the legislation, like the lowered corporate tax rate, that will have a negative effect on affordable housing efforts, the preservation of PABs, the Housing Credit, NMTC, and HTC will allow local governments to continue strengthening and revitalizing communities across the country.

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