House Approves Motion to Reconcile Tax Cuts and Jobs Act Versions
The House recently approved a motion to go to conference to reconcile differences between the House and Senate versions of the Tax Cuts and Jobs Act and announced the members who will serve on the House conference committee. At this time, the Senate has not yet voted to go to conference, but it is expected to take this step soon.
Here is an overview of the House and Senate tax reform bills impacting the LIHTC industry and affordable housing:
House Version of the Tax Cuts and Jobs Act
- Eliminates all private activity bonds, including multifamily bonds, which are accompanied by 4 percent housing tax credits. Multifamily bonds account for over 50 percent of all LIHTC production.
- Lowers the corporate tax rate from 35 percent to 20 percent, which will reduce the amount of equity capital invested in LIHTC properties.
Senate Version of the Tax Cuts and Jobs Act
- Lowers the corporate tax rate from 35 percent to 20 percent.
- Eliminates a number of LIHTC investors, particularly foreign-owned banks, from the program as a result of the Base Erosion and Anti-abuse Tax (BEAT), which does not permit business credits other than the R&D credit to be used against the BEAT. This will remove investors that account for between 10 percent and 25 percent of capital invested in the LIHTC.
- Permanently lengthens the depreciation period for nearly all residential real estate properties from 27.5 years to 30 years, but also permits, for a period, expensing of personal property and land improvements.
- Reduces the basis boost available to properties designated by the states or developed in low-income and “high-cost” areas from 30 percent to 25 percent. This will make it more difficult to undertake development activities in hard-to-reach rural and urban areas marked either by higher production costs, lower incomes, or both. The provision applies to properties placed in service after the date of enactment, affecting properties that have already received credit allocations and/or issued bonds.
- Clarifies that LIHTC property can exclusively be set aside for veterans while removing such a safe harbor for artists’ housing.