NLIHC joined a sign-on letter addressed to the chair, the vice-chair, and members of the U.S. House of Representatives Republicans’ Tax Team on Community Development, which comprises members of the House’s Committee on Ways and Means. The letter urges two key policy reforms to the Low-Income Housing Tax Credit (LIHTC): closing the so-called Qualified Contract (QC) loophole; and providing a purchase option to nonprofit organizations at “Year 15” (the end of the LIHTC compliance period).
QC Loophole Reform
The QC loophole allows LIHTC property owners to discontinue federal and state affordability restrictions after just 15 years, rather than the 30-year minimum affordability requirement usually in place for LIHTC properties. The QC loophole has led to a substantial loss of affordable rental homes, harming low-income residents and resulting in the waste of scarce federal investments. Fully eliminating QCs would help protect the affordability of LIHTC properties by holding developers to the 30-year minimum affordability period.
The sign-on letter urges the Ways and Means Committee to repeal the QC provision for future allocations of Low-Income Housing Tax Credits and modify the rule for existing properties so that in the case of a QC, the “purchasers may acquire an existing Housing Credit property at its fair market value as affordable housing rather than the faulty formula in current law, which ascribes a fictional, elevated value to the property.”
Reforms Involving Purchase Option for Nonprofits
LIHTC rules allow for investor limited partners (LPs) and nonprofit general partners (GPs) to agree to give the nonprofit GP a “right of first refusal” (ROFR) when an LP exits the partnership after the compliance period ends, at year 15. This provision gives the GP the right to purchase the LP’s share of the property before the LP sells to another buyer. The provision is designed to make it easier for the GP to maintain ownership of the property and preserve the property’s affordability restrictions.
ROFR had worked as intended until recent years, when some entities that control LPs began to challenge this right in the hopes of generating windfall returns. As stated in the sign-on letter, “the most egregious practices involve so-called “Aggregators,” which are companies who acquire control of existing Housing Credit investor limited partnerships for the purpose of generating profits by refusing to recognize GP post-year-15 acquisition rights.”
The sign-on letter urges the Ways and Means Committee to modify the LIHTC section of the Internal Revenue Code to permit GPs and LPs to agree on language in the partnership agreement that gives the nonprofit a purchase option. Additional language should provide clarification and strengthen the current rule for the right of first refusal.
These two provisions are important to preserve the long-term affordability of LIHTC properties. With the opportunity for major tax reform coming in 2025, NLIHC will continue to push for LIHTC reforms that increase the supply of affordable, available, accessible housing for households with the greatest need, including these two reforms.
Read the sign-on letter at: https://tinyurl.com/nzd7u2e8