Tax Reform Proposal
On Wednesday, February 26, the Chairman of the House Ways and Means Committee, David Camp (R-MI), released a proposal tax reform bill that would make significant overhauls to the U.S. tax code, including the Low-Income Housing Tax Credit (LIHTC). Camp’s tax reform proposals are still in the drafting stage and they have not been formally introduced as bill. However, NAHMA fully intends to comment on his proposed changes to the LIHTC.
First, Representative Camp’s proposed reforms to the LIHTC would change the allocation method from a credit amount to a qualified basis amount. Under current law, an O/A receives the housing credit from the state in which the property is located or through a local housing credit agency. The state’s available credit allocation can come from its unused amount from the prior calendar year, the credit amount for the current year, returned credits from previous allocations, and from the state’s share of the national pool of unused credits from other states. Under Camp’s LIHTC reform, the state and housing authorities would allocate credits through a qualified basis which would be equal to $31.20 multiplied by the state’s population. This annual amount would continue to include unused allocations from the previous year and the unused allocations that were returned. However, the national pool of unused credits would be eliminated.
Second, Camp’s draft legislation would extend the credit period from 10 to 15 years, which the Committee says is an attempt to match the credit period with the compliance period. This provision would also eliminate the current recapture rules that ensure the property will continue to provide low-income housing for the duration of the tax benefit.
The most alarming proposal in this draft bill is the elimination of the 4% credit (also known as the 30% present value credit). This credit assists in new construction of affordable housing or the acquisition cost of existing buildings meant to be rehabilitated. Federal funding can also be provided in tandem with the 4% credit. NAHMA is strongly against this proposal because it would take away the important preservation/rehabilitation activities that occur through this credit. Furthermore, elimination of the 4% credit could reduce the available stock of affordable housing nationwide.
The 9 percent credit will be retained, but it is proposed that federally funded grants would not be taken into account when determining the eligible basis of a building for purposes of the credit. According to the Ways and Means Committee, the credit would apply to private funding of affordable housing and no additional subsidy would be provided for federal funding.
Other provisions under the proposed legislation include:
- The increased rule for high-cost and difficult development areas would be repealed;
- Occupancy preferences would be permitted only for individuals with special needs and for veterans;
- A repeal of the requirement that states include energy efficiency and historic nature selection criteria for low-income housing; and
While NAHMA understands the need for tax reform, we are unclear about the purpose for some of these provisions to the LIHTC and that the unintended consequences are potentially harmful. NAHMA is concerned that the proposals in this draft legislation could be introduced through other bills in the future as well. However, passage of this bill seems highly unlikely: first, the legislation is still in its draft form and has yet to move past the Ways and Means Committee; second, the Senate is unlikely to approve of the bill in its current form. We will review the proposed reforms in consultation with our Tax Credit Committee and submit comments to the Ways and Means Committee. Our focus in any tax discussion is that both the 9 percent LIHTC credit for new construction and the 4 percent LIHTC credit for acquisition and rehabilitation (preservation) must be preserved in any tax reform legislation.
To read the Committee’s summary document of this tax reform proposal, please
click here (begins on page 87).
