Tax Reform Bills Harm Affordable Housing

Legislation | November 20, 2017 | by Linda Couch

The affordable housing world is on high alert as the Senate is poised to consider its tax reform bill after Thanksgiving recess. The House ended the 4% Low Income Housing Tax Credit (LIHTC) program when it passed its tax bill November 16. Losing the 4% LIHTC would be devastating to organizations’ ability to produce and preserve affordable housing.

The House bill ends the 4% LIHTC program by ending the tax exemption for private activity bonds. Using multifamily housing bonds, a type of private activity bond, is the only way to trigger use of 4% LIHTCs. Ending one ends the other. Nationally, more than 50% of all LIHTC transactions were through 4% LIHTCs (the remaining were through 9% LIHTCs) in 2016. More and more, states are relying on 4% LIHTCs to produce and preserve affordable housing. Eliminating private activity bonds “saves” about $39 billion in the House’s $1.5 trillion tax bill.

Although the Senate tax bill does not end the tax exemption for private activity bonds, it does includes some other provisions that would significantly weaken the LIHTC program.

One of these provision is the bills’ corporate rate reduction:

  • Lowering of the corporate tax rate from 35% to 20%. This rate reduction will reduce the tax loss benefits of LIHTC investments. Novogradac, a housing credit consultancy, estimated that a more severe corporate rate cut to 15% would result in 195,000 to 217,000 fewer LIHTC homes being preserved or produced over the next 10 years.
  • LeadingAge’s ASK: Any final tax bill must modify the LIHTC program so the corporate rate reduction does not devalue LIHTCs. This can be done by 1) increasing the housing credit rate (say, from 9% to 10.2%) so more credit equity can go into a project, and 2) increasing Housing Credit per capita authority so as to not reduce the number of housing deals made.

Indeed, protecting the LIHTC program should be the minimal requirement for any tax bill. LeadingAge hopes that the Senate and House can use a tax bill to improve the LIHTC program. We support provisions from S. 548, cosponsored by Senate Finance Chair Orrin Hatch (R-UT), that includes these improvments: 

  • A basis boost for communities with ELI households.
  • Ability for income averaging to better get at ELI and higher income households.
  • The 4% minimum credit rate.
  • Changes to make vouchers more cost effective in LIHTC communities.
  • Language to help residents avoid displacement during preservation.
  • Expansion of the credit by 50%.

Calls are needed now until any final bill is enacted to tell Senate and House members to preserve 100% of the value of LIHTC by:

  • Keeping the tax exemption for private activity bonds and thus preserving 4% LIHTCs.
  • Modifying the LIHTC so that any corporate rate reduction included in the bill does not devalue LITHCs.

LeadingAge's action alerts on the House and Senate tax bills can help guide your advocacy to the Hill.