The Department of the Treasury’s FY-2012 Budget Proposal
included two major changes to the low-income housing tax credit.  The first change would encourage creating
more mixed-income housing by allowing projects to comply with a rule under
which the income limits for at least 40 percent of the units in a project could
to not greater than 60 percent of area median income (AMI). None of
these units could be occupied by an individual with income greater than 80
percent of AMI, and any units with income limits less than 20 percent of AMI
would be treated as being at 20 percent. The provision would apply to elections
under section 42(g)(1) of the Internal Revenue Code that are made after the
date of enactment.

The second proposal would allow a 30-percent “basis boost”
for LIHTCs for certain projects financed with tax-exempt bonds that are subject
to private-activity-bond volume cap (volume cap). The projects receiving the
boost would involve preservation, recapitalization, and rehabilitation of
existing housing that was originally financed with Federal funds and is subject
to a long-term use agreement limiting occupancy to low-income households. In
each State, the boost for buildings financed in whole or in part by tax-exempt
bonds issued during a calendar year would be limited to buildings whose
financing is assisted with tax-exempt bonds whose aggregate issue price is not
more than an amount equal to 0.4 percent of the State’s volume cap for the
calendar year in which the bonds are issued (regardless which year’s volume cap
is taken into account in issuing the bonds). The State housing finance agency
would determine which preservation projects receive a boost. The proposal would
be effective for projects that are financed by bonds issued after the date of

New Markets Tax Credits

The Treasury budget proposal would also extend and modify
the New Markets Tax Credit.  The
Administration proposes to extend the NMTC through 2012, with an allocation
amount of $5 billion for that year. The Administration also proposes that $250
million of this $5 billion be allocated to support financing healthy food
options in distressed communities as part of the Healthy Food Financing
Initiative. The proposal would also permit the NMTC to permanently offset AMT

Build America Bonds

Additionally, the budget proposes to extend and amend the Build
America bonds program.  ARRA created the
Build America bond program as an optional new lower cost borrowing incentive
for State and local governments on taxable bonds issued in 2009 and 2010 to finance
new investments in governmental capital projects. Under the original program
applicable to Build America bonds issued in 2009 and 2010, the Department of
the Treasury makes direct subsidy payments (called “refundable tax credits”) to
State and local governmental issuers in a subsidy amount equal to 35 percent of
the coupon interest on the bonds. The Administration proposes to make the
successful Build America bond program permanent at a reduced subsidy level
designed to be approximately revenue neutral in comparison to the Federal tax
losses from traditional tax-exempt bonds. The Administration also proposes to
expand the Build America bond program beyond new investments in governmental
capital projects to include certain additional program uses for which State and
local governments may use tax-exempt bonds under existing law. The proposed
modifications to the Build America bond program would be effective for bonds issued
beginning upon the date of enactment.

Energy Retrofit Credit

The proposal would replace the existing 179d deduction for
energy efficient commercial building property expenditures with a tax credit
and also allow taxpayers to take an alternative credit for placing in service
specified property that meets certain energy efficiency standards.  If a real estate investment trust (REIT)
becomes entitled to the credit, the REIT would be able to entitle its shareholders
to the credit under regulations prescribed by the Secretary of the Treasury.
The tax credit would be available for property placed in service during
calendar year 2012.

Energy Credits

The budget also would extend the ability to elect to receive
a grant for specified energy property in lieu of tax credits.  Qualifying energy properties includes solar
property, certain fuel cell and microturbine property, geothermal power
production property, geothermal heat pump property, small wind energy property,
and combined heat and power system property.  Click here to learn more…