On August 2, the Senate Committee on Finance approved an important amendment to the Low Income Housing Tax Credit program as part of a draft tax extenders bill. Other housing-related provisions were also included in the bill, the Family and Business Tax Cut Certainty Action of 2012.
Senators Maria Cantwell (D-WA) and Olympia Snowe (R-ME) introduced an amendment to the tax extenders bill during the Committee’s August 2 markup that would give more time for LIHTC projects to take advantage of the 9% minimum rate for LIHTC provided by 2008’s Housing and Economic Recovery Act (HERA).
A minimum tax credit rate for the 9% credit was included in HERA but will expire for apartments placed in service after the end of 2013. As enacted in the Tax Reform Act of 1986, the amount of LIHTCs that are awarded to development projects is based on a formula that uses the federal cost of borrowing to determine the credit rate. As the cost of borrowing declines, the amount of LIHTCs also declines. The provision establishes a 9% minimum credit amount that LIHTC developments would receive, protecting them from reductions in investor equity that can be used to build affordable housing.
HERA established this 9% minimum rate for LIHTC projects placed in service in 2013. The successful amendment would continue the 9% minimum floor for projects “allocated” LIHTCs in 2013.
The language change made by the amendment is subtle, but its impact is significant. LIHTC developers say that the “placed in service by the end of 2013” stipulation for receipt of a 9% minimum tax credit rate will stall LIHTC development as early as this year, as it can take several months or more to place a tax credit project into service. Making the minimum rate dependent on allocation, not placement into service, provides some relief. Housing advocates continue to support H.R. 3661 and S. 1989, which would make the 9% minimum credit rate permanent and establish a similar minimum rate for the 4% credit.
The Senate Committee’s draft tax extenders bill also includes a two years renewal of a provision, expired at the end of 2011, allowing recipients of the military basic allowance for housing to exclude that allowance from their income for the purpose of determining eligibility for LIHTC units. The exclusion would apply only to “qualified” LIHTC buildings, defined as those located in counties with military bases whose personnel size has grown by more than 20% between 2005 and 2008. The provision would also apply to LIHTC buildings in adjacent counties. NLIHC has long opposed this exclusion of income and believes that it only serves to allow higher income households into LITHC units, at a time when Congress should be making the LIHTC program more affordable to lower income households. The Defense Department itself does not think the exclusion is necessary.
The draft tax extenders bill also includes an extension of the New Markets Tax Credit, which seeks to leverage private investment in low income communities by providing a 39% tax credit spread over seven years. The bill also includes a two year extension of a policy that allows mortgage insurance to be deduced for a qualified personal residence for households with adjusted gross incomes of less than $110,000.
View the Committee’s materials on the Family and Business Tax Cut Certainty Action of 2012.