The House Ways and Means Committee released on September 10 draft legislation providing robust affordable housing investments as part of a comprehensive budget reconciliation package. The committee is slated to vote on the tax bill on September 14 before the bill is combined with legislation from other committees – including a proposal to invest $327 billion in affordable housing from the House Financial Services Committee – for a vote on the House floor by the end of the month.
Low-Income Housing Tax Credit
The bill includes a number of provisions to help ensure that Low-Income Housing Tax Credit can better serve extremely low-income households. The bill requires states to set-aside 10% of their annual 9% tax credit allocation for developments in which at least 20% of units are for extremely low-income households.
The bill also allows states to provide an expanded basis boost – from 130% under current law to 150% under the new proposal – for some ELI developments. The expanded ELI basis boost is available for the 9% and 4% tax credits, and it can be used for up to 15% of a state’s annual LIHTC allocation and 10% of a state’s annual Private Activity Bond volume cap.
To help offset the costs to develop ELI apartments and expand resources to finance affordable housing, the bill provides a 60% increase in the 9% tax credit allocation – 10% higher than proposed under the “Affordable Housing Credit Improvement Act” from Senators Maria Cantwell (D-WA) and Todd Young (R-IN) and Representatives Suzan DelBene (D-WA) and Jackie Walorski (R-IN). The expansion of the 9% tax credit would be phased in over four years, after which the program would receive an adjustment for inflation for three additional years.
The tax bill includes several other important changes to the LIHTC program. The bill reduces the bond-financing threshold from 50% to 25% for seven years to help finance thousands of additional affordable homes.
The bill permanently expands the 30% Difficult Development Areas (DDA) basis boost to include developments in rural and tribal areas, as defined by the U.S. Department of Agriculture (USDA) housing programs and the Native American Housing Assistance and Self Determination Act (NAHASDA), respectively. The bill also identifies developments using the 4% credit as a DDA, allowing these properties to receive a basis boost, for seven years.
The bill takes steps to close the “Qualified Contract” loophole some developers have used in recent years to exit the tax credit program early and to increase rents. The bill repeals the Qualified Contract option for developments receiving tax credit allocations after January 1, 2022. For existing properties, the bill corrects the statutory price for the purchase of a development so that it is based on fair market value of the property. Together, these two measures will help stop this abusive practice.
The bill makes several changes to the “Right of First Refusal” under the tax credit program to help prevent third-party investors from preventing mission-driven nonprofits from taking full ownership of LIHTC properties starting after Year 15. The bill converts the right to purchase into a purchase option, expands the definition of “property” to include the partnership assets, allows the option holder to exercise the right of first refusal without requiring the approval of an investor or requiring a bona fide third-party offer, and limits the purchase price to only debt, excluding exit taxes.
Neighborhood Homes Investment
The bill also includes a new Neighborhood Homes Investment tax credit, as proposed by President Biden in his American Jobs Plan.
Read the draft legislation at: https://tinyurl.com/4s78r5t4