On September 10, 2021, House Ways and Means Committee Chairman Richard Neal (D-MA) unveiled a package of tax provisions the Committee will mark up on September 14 and 15. These proposals are part of the Build Back Better Act, the “human” infrastructure legislation being considered under the budget reconciliation process. We are pleased to report that important provisions from the Affordable Housing Credit Improvement Act (AHCIA) are included and will be considered by the Committee on September 14. We applaud Chairman Neal’s ongoing support for expanding and improving the Low-Income Housing Tax Credit, and we thank our House champions, led by Rep. Suzan DelBene (D-WA), for their unflagging commitment to addressing the affordable housing crisis.
The housing package, scored by the Joint Committee on Taxation, includes the following modified provisions from the AHCIA:
-Increases the annual 9 percent credit allocation by 60 percent – phased in over 4 years (2022-2025). For calendar years 2026-2028, the amounts are adjusted for inflation. The increases include the 12.5 percent increase passed in 2018 that is scheduled to expire at the end of this year. Ten percent of the allocation increase supports provisions for developments serving extremely low-income households. Those provisions are noted below.
-Temporarily reduces the “50 percent test” from 50 percent to 25 percent for buildings financed by an obligation issued in calendar years 2022-2028 and placed in service in taxable years after December 31, 2021.
-Provides a 30 percent basis boost for development in rural areas and Native American areas, if needed for financial feasibility. The provisions are effective for buildings placed in service after December 31, 2021.
-Provides a 50 percent basis boost and 10 percent set aside for developments serving extremely low-income households. The provisions are effective for years 2022-2031.
-Allows state housing agencies to designate properties financed with tax-exempt bonds as eligible for up to a 30 percent basis boost, if needed for financial feasibility. The provision is effective for years 2022-2028.
In addition, the bill includes the following provisions:
-Repeals the Qualified Contract option for buildings receiving LIHTC credits after December 31, 2021, and modifies the specified statutory price for those buildings that still make use of the qualified contract exception.
-Modifies and clarifies rights related to building purchases (Right of First Refusal).
-Creates a Neighborhood Homes Investment Tax Credit to encourage building or rehabilitation of affordable homes (for home ownership) in distressed neighborhoods.
-Makes permanent the New Markets Tax Credit and provides an additional allocation amount for the 2022 and 2023 allocation rounds.
-Creates a new permanent New Markets Tax Credit for low-income communities in tribal areas and for projects that serve or employ tribe members.
-Creates a new permanent New Markets Tax Credit for the territories.
-Ends the credit adjustment for the Historic Tax Credit. Effective for properties placed in service in 2023 and thereafter, the depreciable basis adjustment would be changed from 100 percent to zero, eliminating the requirement that the HTC be deducted from a building’s basis at the time of transfer and making the HTC easier to use with the LIHTC.
-Temporarily increases the Historic Tax Credit (HTC) percentage from 20 percent to 30 percent for years 2020-2025 and then phases down the percentage returning to 20 percent in 2028 and thereafter. The bill would permanently increase the percentage to 30 percent for certain small HTC properties. Among other modifications to the HTC, the bill also changes the definition of “substantially rehabilitated.”
-Creates a bonus energy tax credit for certain solar facilities placed in service in connection with low-income communities.
On September 13, Chairman Neal released additional Build Back Better Act language that includes a number of offsets intended to help cover the cost of the plan. Of note to the affordable housing community is an increase in the corporate income tax from 21 to 26.5 percent, and a modification to the Base Erosion and Anti-Abuse Tax (BEAT) that would take into account general business tax credits in the determination of the base erosion minimum tax amount. The Ways and Means Committee is expected to consider the offsets on September 15.
Once the Ways and Means Committee completes its work on reconciliation, the provisions will be sent to the House Budget Committee where they will be incorporated into a single package that includes the recommendations from all House committees that received reconciliation instructions set out in the Fiscal Year 2022 Budget Resolution. On September 13, the House Financial Services Committee begins consideration of its reconciliation legislation, which includes substantial affordable housing provisions.
House Speaker Nancy Pelosi (D-CA) hopes to schedule a floor vote on the reconciliation package by the end of September. That is an ambitious schedule, and already a number of House Democrats have expressed concern about the size of the package and with many of the revenue raisers under consideration to offset the cost of the package. Another group of Democrats is insisting that the package include a full restoration of the state and local tax deduction that was pared back in the 2017 Tax Cuts and Jobs Act. With the very thin House Democratic majority and no expected support from House Republicans, it will be challenging to find the right combination of provisions to get the bill through the House.
Meanwhile, the Senate is working on its reconciliation bill. Reconciliation is a particularly important tool in the Senate because it allows legislation to pass by a simple majority rather than the 60 votes generally needed to advance bills in the Senate. But with no Republican support anticipated, Senate Majority Leader Charles Schumer (D-NY) will need all of the 48 Democrats and the two Independents to be on board – and that likely will mean a much smaller bill than the $3.5 trillion ceiling reflected in the Budget Resolution.
We will keep you posted on developments, and please let us know if you have any questions.