Congress Passes Final Tax Reform Bill; Highlights of the Bill Relevant to Affordable Housing

Congress Passes Final Tax Reform Bill; Highlights of the Bill Relevant to Affordable Housing

Today, after some procedural glitches that required the House to vote on it twice, Congress passed the massive tax cut bill that President Trump called “a big, beautiful Christmas present.” H.R. 1 passed the Senate by a vote of 51-48 and then the House by a vote of 224-201 – without a single Democratic vote. The President is eager to sign the bill as quickly as possible. Affected taxpayers now must scramble to digest the dramatic changes that will, in most cases, go into effect almost immediately – on January 1, 2018.

We wanted to highlight some key issues raised during consideration of H.R. 1 that are relevant to our industry.

  • Low Income Housing Tax Credit (LIHTC):  H.R. 1 retains the LIHTC, making no direct changes to the structure of the credit.  Provisions in the Senate-passed bill authored by Senator Pat Roberts (R-KS) making changes to the general public use safe harbor and the automatic basis boost for rural areas were not included in the final agreement.  His revenue offset reducing the basis boost for all properties was not included.  The bill also adopts a slightly different measure of inflation that will result in smaller annual indexing increases each year. This will affect the annual per capita allocation for the credit.
  • Private Activity Bonds (PABs):  H.R. 1 retains current law for tax-exempt PABs; reflecting congressional opposition to the House provision terminating them.  The new measure of inflation mentioned above also will affect the volume cap for PABs.
  • Base Erosion and Anti-abuse Tax (BEAT):  H.R. 1 includes a “base erosion minimum tax” provision designed to curb companies from significantly reducing their U.S. tax liability by making cross-border payments to affiliates.  The calculation of the BEAT raises concerns that corporations subject to the tax may find investment in the LIHTC less attractive.  H.R. 1 does attempt to mitigate this concern by exempting 80 percent of the value of the LIHTC from the BEAT calculation.
  • Corporate Income Tax Rate:  H.R. 1 lowers the corporate tax rate from 35 percent to 21 percent beginning in 2018.
  • New Markets Tax Credit (NMTC):  H.R. 1 retains the NMTC 2018 and 2019 allocating rounds; reflecting congressional opposition to the House provision terminating allocation rounds after 2017.
  • Historic Tax Credit (HTC):  H.R. 1 retains the 20 percent HTC; reflecting congressional opposition to the House provision repealing it.  The legislation does require the credit to be ratably claimed over five years, and it repeals the 10 percent rehabilitation tax credit for pre-1936 buildings.
It will take some time to sort out the full impact of these and other provisions on affordable housing — particularly with regard to the lower corporate tax rate and the effect of the base erosion tax.  But we have much to be thankful for with respect to the final bill.  Our champions, Senators Maria Cantwell (D-WA) and Orrin Hatch (R-UT), and Rep. Pat Tiberi (R-OH), served us well as Congress navigated the very difficult task of cutting taxes and finding offsetting revenues.
But more importantly, we would like to take this opportunity to thank our HAG members who heeded our call to advocate on behalf of the LIHTC, PABs, and affordable housing in general.
As negotiations on the tax bill progressed and efforts to generate revenue were at a critical juncture, direct contact between HAG members, Senators and Representatives played a critical role in retaining PABs, inserting language to assuage the effects of the base erosion and anti-abuse tax (BEAT) on LIHTC investments, and elimination from the bill of the amendment that would have reduced the basis boost from 30 percent to 25 percent.  Along with our industry colleagues, we beat back efforts that could have been devastating to affordable housing production and set us back in our efforts to expand the program.
Your efforts over these past years made all the difference in this tax reform process.  The level of bipartisan congressional support our industry has cultivated played a significant role in securing the LIHTC and PABs in the tax bill and ensuring the future of both affordable housing tools.
As we celebrate these efforts, our focus now returns to expanding resources and producing more affordable housing.   We also wait to see what transpires with the expiring continuing resolution (CR) and where we end up with the FY 2018 budget.  We remain engaged in that discussion as well.
For now, we wish you a very happy holiday season and the best as we head into 2018.

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