Two Steps to Ensure Affordable Housing Production is not Lost

April 2, 2018                       By: Michael Novogradac

Affordable rental housing survived the tax reform war of 2017, though not unscathed. Now it needs to stabilize and prepare to rebuild–and it took a first step to do so in March.

Tax credits and private activity bonds (PABs) were all under significant threat during 2017’s yearlong battle over tax reform, which resulted in the passage of H.R. 1 in December 2017. The legislation preserved the low-income housing tax credit (LIHTC), PABs, the new markets tax credit (NMTC) and renewable energy investment tax credit (ITC) and production tax credit (PTC); while preserving but changing the historic tax credit (HTC). Considering that the House version of tax reform included the elimination of the tax-exemption of PABs, which help fund more than half of LIHTC developments every year, things could have been considerably worse.

However, merely preserving these incentives doesn’t mean they escaped unharmed–particularly the LIHTC. The damage to affordable housing from the tax legislation is steep, primarily because the reduction of the top corporate tax rate from 35 percent to 21 percent.

That means the value of the tax losses that accompany LIHTC investments is reduced. A Novogradac & Company analysis found that the 14 percent lower corporate tax rate likely reduces the amount of LIHTC equity that can be raised by about 14 percent. In dollar value, that’s roughly $1.7 billion each year........................Read More