House Republicans Introduce Tax Reform Proposal
On Feb. 26, Ways and Means Chairman Dave Camp (R-Mich.) released a draft tax reform proposal that would modify the Low-Income Housing Tax Credit (LIHTC) program. The proposal came about from a process that involved more than 30 separate Congressional hearings dedicated to tax reform, 11 separate bipartisan tax reform working groups created in conjunction with Ranking Member Sander Levin (D-Mich.), three discussion drafts looking at discrete areas of the tax code, and more than 14,000 public comments at TaxReform.Gov. Here are the changes proposed in the tax reform draft:
Allocation of basis: Under the provision, state and local housing authorities would allocate qualified basis, rather than credit amounts. The annual amount of allocable basis for each state would be equal to $31.20 multiplied by the state’s population, with a minimum annual amount of $36.3 million. The annual amount would continue to include unused basis allocations from the prior year plus basis allocations returned to the state during the calendar year from previous allocations. The national pool of unused credits, however, would be eliminated.
Credit period: Under the provision, the credit period would be extended from 10 years to 15 years to match the current 15-year compliance period. Because the credit period would be aligned with the compliance period, the recapture rules also would be repealed as no longer necessary to ensure that the building continues to be a low-income housing project for the duration of the tax benefit.
Credit amount: Under the provision, the 4 percent credit would be repealed. The 9 percent credit for newly constructed property and substantial rehabilitations would be retained. In addition, federally funded grants would not be taken into account in determining the eligible basis of a building for purposes of the credit. As a result, the credit would apply to private funding of low-income housing and not provide an additional subsidy for federal funding of such projects.
The amount of the credit would continue to equal the qualified basis in the qualified low-income building multiplied by the applicable percentage. Under the provision, the IRS would determine the applicable percentage generally for the month that the building is placed in service, which would be equal to the percentage that would yield over a 15-year period a credit amount that would have a present value equal to 70 percent of the qualified basis of the building.
Other changes: Under the provision, several other rules would be modified. First, the increased basis rule for high-cost and difficult development areas would be repealed. Second, the general-public-use requirement would be revised to eliminate the special occupancy preference for members of specific groups under certain federal or state programs and the special preference for individuals involved in artistic and literary activities. Instead, occupancy preferences would be permitted only for individuals with special needs and for veterans. Third, the provision would repeal the requirement that states include in their low-income-housing selection criteria the energy efficiency of the project and the historic nature of the project.
The provision would be effective for state basis amounts and allocations of such amounts determined for calendar years after 2014. A transition rule would translate credit allocations prior to 2015 into equivalent amounts of eligible basis for purposes of determining new allocations of basis after 2014.