House Bill proposes changes in low income tax credits

The House of Representatives introduced on April 8, 2008, H.R. 5720, the “Housing Assistance Tax Act of 2008“. Unlike the Senate bill it includes provisions to improve low income housing tax credits including raising the allocation from $2 to $2.20 for each person residing in the state.

The Senate version is S.2636 “The Foreclosure Prevention Act of 2008.” The Senate bill contains supplemental CDBG funds to allow communities “to purchase foreclosed homes, at a discount, and rehabilitate or redevelop the homes to stabilize neighborhoods and stem the significant losses in house values of neighboring homes.” This funding might provide opportunities for local communities in New Jersey to utilize these properties to develop supportive housing for persons with special needs and the homeless.

Neither bill may pass even though they have secured bipartisan support.

To read the full details of the House Bill click here.

To read the full details of the Senate Bill click here.

The House bill includes new initiatives including several that would impact on low income housing tax credits.

Temporary increase in low-income housing tax credit. Under current law, there is a state-bystate limit on the annual amount of Federal low-income housing tax credits that may be allocated by each state. This limitation is currently set at $2.00 for each person residing in the state. The bill would increase this limitation in 2008 and 2009 by an additional 20 cents for each person residing in the state. This proposal is estimated to cost $1.05 billion over 10 years.

Low-income housing tax credit simplification. Last year, the Department of the Treasury testified before the Subcommittee on Select Revenue Measures that “there may be ways to simplify the [low-income housing tax credit (LIHTC) program] and improve its effectiveness in serving the needs of low-income people while at the same time reducing the burden placed on the Internal Revenue Service (IRS) and State agencies administering the program.” To this end, the bill contains numerous proposals to simplify the technical rules relating to the LIHTC. In particular, the bill would eliminate the distinction between new and existing buildings for purposes of this credit, establish a minimum credit rate for non-Federally subsidized buildings, clarify the circumstances under which a building is considered to be Federally subsidized and the circumstances in which Federal assistance will be taken into account in calculating the LIHTC, provide State housing agencies with greater flexibility to select sites for low-income housing projects and allocate adequate amounts of credit for projects, clarify the rules relating to determinations of current income, provide developers with more time to begin construction of low-income housing projects after the credits have been awarded (one year instead of current law 6 months), reform rules pertaining to sales of low-income housing buildings, and eliminate technical barriers to rehabilitating low-income housing projects. These proposals are estimated to cost approximately $250 million over 10 years.

Tax-exempt housing bond simplification. The bill contains two proposals to simplify the
technical rules relating to tax-exempt housing bonds. In the construction and development of low-income housing projects, states may find that it is mot efficient to finance projects using a series of short-term bonds. Under current law, there is a limitation on the annual amount of taxexempt housing bonds that each state may issue. Under current law, a state is required to separately count each issuance in a series of short-term bonds against this limitation even if a later bond replaces an earlier bond. The bill would clarify that where a state issues a series of short-term bonds for low-income housing projects that these bonds will only be counted once against this limitation. The bill would also update the tax-exempt housing bond rules to conform certain aspects of these rules to the low-income housing tax credit rules. These proposals are estimated to cost approximately $519 million over 10 years.