Congress Passes Tax Cuts and Jobs Act; Retains Critical Housing Programs
The House and Senate both passed the final version of the Tax Cuts and Jobs Act, H.R. 1, this week and sent the bill to the President’s desk for a signature. The final version of the bill:
- Retains the Low-Income Housing Tax Credit (Housing Credit), with no modifications. Changes to the Housing Credit included in the Senate-passed version of the bill that would have changed the Housing Credit’s general public use requirement and basis boost rules were removed from the final bill.
- Retains private activity bonds (PABs), including multifamily Housing Bonds, which provide critical financing to more than half of all Housing Credit developments and trigger the “4 percent” Housing Credit. The bill made no modifications to PABs that would have undercut Housing Bonds, such as modifications to PAB carryforward rules.
- Lowers the top corporate tax rate from 35 to 21 percent, effective January 1, 2018, which we expect to reduce Housing Credit pricing.
- Creates a base erosion and anti-abuse tax (BEAT), which would make Housing Credit investment less attractive to certain investors with foreign operations. However, the final bill attempts to mitigate the impact of the BEAT on Housing Credit investment by exempting 80 percent of the value of the Housing Credit from the BEAT. ACTION is working to analyze the extent to which the BEAT will still impact Housing Credit investors.
The inclusion of these critical affordable housing financing tools in the final tax reform bill is a testament not just to the programs’ strong track record, but also to the exceptional advocacy of stakeholders across the country. Thank you to all ACTION members who mobilized over the past several weeks to preserve multifamily Housing Bonds in the final tax reform bill and sustain affordable housing production.
Advocacy in 2018
The new tax system also presents concerns that we will work to address in the coming months. A recent analysis by Novogradac & Co. estimates that the final version of the tax reform bill would reduce affordable rental housing production by nearly 235,000 homes over the next decade due to the lower corporate tax rate and a change to the Credit’s inflation calculation. The vast majority of the impact comes from the loss of investor equity resulting from the reduced corporate rate. The BEAT could have a further negative impact on the Housing Credit equity market, which we are now working to analyze.
GOP leadership has indicated they will consider a follow-up tax bill in 2018, and ACTION will continue advocating for modifications to keep the Housing Credit whole in technical corrections or other follow-on tax legislation. This includes advocating for modifications to the Housing Credit formula to sustain the Credit’s production potential even under the reduced corporate tax rate, as well as modifications to offset the potentially negative impacts of BEAT.
The tremendous support for the Housing Credit we witnessed during this recent tax reform debate will be critical as we continue urging Congress to address these concerns and sustain the Housing Credit’s production potential in a new tax system. This includes continued advocacy for modifications to strengthen and expand the Housing Credit, including the common-sense proposals in the Affordable Housing Credit Improvement Act, S. 548 and H.R. 1661.
We look forward to working with Congress to address these concerns, advance the Affordable Housing Credit Improvement Act and strengthen our affordable housing delivery system in 2018 and beyond.