House and Senate Republican leadership have reportedly struck a general agreement on tax reform legislation, reconciling the House- and Senate-passed versions of the Tax Cuts and Jobs Act, H.R. 1. We expect them to file this final legislation, commonly known as the conference report, before the end of the week. While there have been press reports on various aspects of the agreement, including those about private activity bonds (PABs), we do not expect to know the official details or see bill language until tomorrow. The conference committee held an open meeting yesterday, which was largely ceremonial because the agreement itself was not released ahead of the meeting, and Democratic conferees expressed concern that they did not yet know the details of the deal. The Senate is expected to vote on the bill early next week, with the House following shortly thereafter.
Media and congressional sources have reported that both the Low-Income Housing Tax Credit and PABs will be retained in the new version of the Tax Cuts and Jobs Act. We do not yet know, however, whether there will be any restrictions on the use of PABs that may impact affordable housing. This week ACTION sent a letter to Congress urging them to fully retain the tax exemption on multifamily Housing Bonds, and to reject any modifications to the PAB program that in any way would restrict or reduce the use of Housing Bonds.
We are still awaiting clarity around several other issues affecting affordable housing:
- Changes to the Housing Credit: The Senate-passed tax reform bill included several modifications to the Housing Credit, originating from an amendment authored by Senator Pat Roberts (R-KS):
- Replacing the existing Housing Credit general public use requirement exception for artist housing with one for veterans. Though we expect this provision to remain in the bill, changes may be made to ensure existing artists' housing is not at risk for tax credit recapture.
- Making properties in rural areas eligible to receive a basis boost. This provision is likely to remain in the final bill.
- Reducing the maximum basis boost for all types of boost-eligible developments from 130 to 125 percent. Senator Roberts has requested this provision be removed from the final bill, however we do not yet know if it has been.
- The corporate tax rate: The latest reports indicate that the top corporate rate will be set at 21 percent, and would go into effect on January 1, 2018. We do not expect Congress to provide any adjustment to offset the negative impact the lower corporate tax rate would have on Housing Credit production in this bill.
- The base erosion and anti-abuse tax (BEAT): The Senate-passed tax bill’s BEAT provision would reduce, or potentially eliminate, the value of Housing Credit investment to certain investors. We do not know whether the final agreement will make changes to prevent the loss of Housing Credit investment that might occur if the Senate language is adopted in the final bill.
We will provide another update once the new version of the Tax Cuts and Jobs Act becomes available.