LIHTC Preserved and Weakened by Tax Reform

Tax Reform Would Eliminate 4% LIHTC

LIHTC Preserved and Weakened by Tax Reform On February 26th, House Ways and Means Chairman Dave Camp released his long-awaited comprehensive tax reform discussion draft, the Tax Reform Act of 2014.

The ACTION Campaign, of which Monarch Housing is an active member, is very pleased that the draft preserves the LIHTC, even while eliminating dozens of corporate tax expenditures in order to bring top corporate rates down to 25 percent.

While we are grateful that Chairman Camp recognized the importance of retaining this critical tool, the draft also proposes a number of modifications to the Housing Credit that are very concerning to the affordable housing industry, including eliminating the 4 percent Housing Credit, extending the credit period from 10 to 15 years and eliminating private activity bonds.

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Tax Reform Act of 2014 LIHTC Provisions Overview

  • LIHTC Preserved and Weakened by Tax Reform Eliminates tax-exempt private activity bonds. Tax-exempt bonds support the financing of 40 percent of all Housing Credit development annually, including many preservation projects.
  • Eliminates the 4 percent Housing Credit, which likely eliminates the acquisition credit used in preservation projects that also have 9 percent credits. Together with the elimination of tax-exempt bonds, this change appears to be very detrimental to the use of the Housing Credit for preservation activities.
  • Changes the length of the credit period from 10 to 15 years. We will further analyze what the new “9%”credit percentage, claimed over 15 years, would be.
  • Stipulates that housing finance agencies would allocate qualified basis rather than credit amounts, at a rate of $31.20 multiplied by the state’s population, with a minimum of $36.3 million.
  • Repeals the 130% basis boost for “high-cost and difficult development areas.”
  • Eliminates all special occupancy preferences except for individuals with special needs and veterans.
  • Removes the requirement that states include energy efficiency and the historic nature of the project as selection criteria.

Overall, the draft asserts that these changes are expected to make the LIHTC a less expensive program and thereby increase revenues by $10.7 billion over the period from 2014 to 2023. It is also estimated that these changes would increase the amount of Housing Credit-financed projects by more than 5% (creating more projects at a lower cost to taxpayers), presumably on the theory that the elimination of the 130% boost will mean that Housing Credit allocations will be spread among more projects.

Though we do not expect that this discussion draft will be marked up in committee or even formally introduced, it represents years of work and is likely to be used as a starting point for future tax reform efforts.

While we are very pleased that the Housing Credit was one of just three business credits retained in the proposal, we are very concerned that some of the changes could be very detrimental to the program’s effectiveness in creating and preserving affordable housing.

Now is the time to ensure our members of Congress know the impact of these changes. The LIHTC has been crucial to ensuring that there are homes we can all afford and that everyone in NJ has a place to call home.

Congressional Housing Staffers