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.