NH&RA member firm, Novogradac & Company, recently released a report entitled “Affordable Rental Housing after Tax Reform” which details the effect corporate tax reform could have on the equity raised from Low-Income Housing Tax Credits (LIHTC). The report concludes that changes that result from corporate tax reform could negatively or positively affect the amount of equity that can be raised from the LIHTCs. More specifically, the report notes that even if LIHTC emerges from the tax reform debate unchanged, other possible changes to the tax code could affect the amount of LIHTC equity that can be raised. This includes proposals to lower the marginal corporate tax rate and the proposal to broaden the tax base specifically moving to an alternative depreciation system (ADS) in which property is depreciated over longer periods of time than under the current system.
Novogradac&’s analysis finds that assuming investors would seek the same yields for affordable rental housing investments after tax reform as they did before, lower corporate tax rates would then reduce LIHTC investor equity prices for both 9 percent and 4 percent credits. Thus, the lower rates would lead to 2.9 to 8.5 percent less equity for 9 percent deals and 3.1 to 8.6 percent less equity for 4 percent LIHTC transactions. What’s more, extended depreciation periods combined with a lower tax rate would further exacerbate this trend.