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02.28.14

Chairman Camp's Tax Reform Proposal Raises Issues for Housing

The draft proposal would dramatically change parts of the tax code.  It would eliminate the rehabilitation tax credit (also known as the historic tax credit), and the renewable energy investment tax credit.  The new markets tax credit is not a permanent program, but by implication it would not be renewed under this bill. 

 

On the plus side, the low income housing tax credit made the first cut and remains, but in a substantially remade format, which likely will make it much less effective.  Also, congressional sources are already predicting that tax reform will require serious study and not be enacted this year.  Still, the discussion draft provides a working template for further tax reform discussion. 

As to the low income housing tax credit, the fundamental changes include:

  • eliminating the 4 percent acquisition credit;
  • credit period of 15 years;
  • housing finance agencies would allocate qualified basis rather than credit amounts, at a rate of $31.20 multiplied by the state’s population, with a minimum of $36.3 million; and
  • repeal the 130% basis boost for "high-cost and difficult development areas”.
The draft, and the accompanying statement by the Joint Committee on Taxation, provide that the changes will both be less expensive program (increasing revenues by $10.7 billion over 10 years) and would increase the amount of Housing Credit-financed projects by more than 5%.  The two points would seem to be inconsistent.
 
At the same time, the draft eliminates entirely tax-exempt private activity bonds. That means no 4% low income housing tax credit transactions at all.