On December 18, President Barack Obama signed into law a broad tax extenders bill, the “Protecting Americans from Tax Hikes Act of 2015,” which makes permanent certain tax provisions, including setting minimum tax credit rates for housing projects that receive Low Income Housing Tax Credits (LIHTCs). The bill, estimated to cost $680 billion over ten years, is not offset by tax increases or spending cuts elsewhere in the budget.
The bill permanently extends the minimum LIHTC rate at a fixed 9% for new construction and substantial rehabilitation projects retroactive to January 1, 2015. The bill does not establish a minimum fixed 4% tax credit rate for acquisition projects. The Joint Committee on Taxation estimates that permanently setting the 9% rate will cost $19 million over a 10-year period.
Without the extension, LIHTC projects would have continued to receive a floating tax credit rate based on the federal cost of borrowing. As federal borrowing rates have reached historically low levels, so have housing tax credit rates. The credit rate for new construction or significant rehabilitation is 7.49% in December, providing less equity for LIHTC projects.
The tax package also includes a two-year extension of the New Markets Tax Credit and a permanent extension of a provision allowing recipients of the military basic allowance for housing to exclude that allowance from their income for the purpose of determining eligibility for LIHTC-assisted housing.
The bill also permanently extends the enhanced Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). These programs were expanded under the 2009 “American Recovery and Reinvestment Act,” but the expansions were set to expire at the end of 2017. The Center on Budget and Policy Priorities estimates that up to 50 million Americans, including up to 25 million children, will benefit from making these tax credits permanent. Republicans had fought to include new “program integrity” checks in the EITC and CTC programs to prevent fraud, while Democrats demanded that the CTC be indexed for inflation so that it does not lose value over time. Neither demand was included in the final tax package.
The House approved the tax extender bill by a vote of 318 yeas (241 Republicans and 77 Democrats) to 109 nays (3 Republicans and 106 Democrats) on December 17. The Senate passed the tax extender bill combined with the omnibus spending bill by a vote of 65 yeas (38 Democrats, 26 Republicans, and 1 Independent) to 33 nays (6 Democrats, 26 Republicans, and 1 Independent) on December 18.