Two-Year Tax Extenders Package Proposed

Two-Year Tax Extenders Package Proposed

Just a few weeks before lawmakers head home for the holidays, Congress is trying to reauthorize a package of tax provisions. Among the negotiations are many of the tax credits and reductions that individuals and businesses can rely on during the coming tax season in April. Known as “tax extenders” in Washington, these provisions make up a group of about 50 tax reductions and tax breaks that expire every year. They are separate from the regular tax code, and it seems that, each year, Congress renews and amends the measures soon after they expire.

The last round of tax extenders expired in 2014 and Congress retroactively renewed them for that year’s tax returns. If they are to apply on 2015 returns, lawmakers must retroactively renew expired extenders again. Rather than rubber-stamping the whole package again, lawmakers are trying to negotiate a deal with the White House to renew some while making others permanent additions to the tax code.

The LIHTC industry has been active in lobbying to make permanent minimum Low-Income Housing Tax Credit rates of 9 and 4 percent. One rate is used for financing new construction and substantial rehabilitation, and the other for the acquisition of existing properties. Though Congress initially set the rates for these credits at 9 percent and 4 percent respectively, they are now determined by a “floating rate” formula that fluctuates with federal borrowing rates. 

When credit rates decline, sites have less equity available to them. Realizing this problem, Congress created a minimum housing credit rate in 2008, which has been extended twice. But the minimum rate has once again expired. As a result, an affordable housing development in 2015 has between 15 and 20 percent less housing credit equity available than when the minimum rate was in effect.

Most recently, House Ways and Means Committee Chairman Kevin Brady (R-Texas) proposed a two-year extenders package that includes the 9 percent fixed rate for the low-income housing tax credit program for 2015 and 2016. Brady’s proposal also includes:

  • The extension of the New Markets Tax Credit;
  • The extension of the military housing allowance exclusion for determining whether a tenant in certain counties is low income; and
  • The extension of credits for energy-efficient new homes.

Not included in the proposal is the 4 percent fixed rate for acquisitions, which the Senate Finance Committee has passed twice.