Story Update April 30, 2014: This past week, Senate Majority Leader Harry Reid (D-NV), said that he will soon have the Senate vote on the EXPIRE Act. The bill made it out of the Senate Finance Committee with broad bipartisan support on April 3, and industry experts expect it to pass the full Senate with bipartisan support as well.
Representative Dave Camp (R-MI) , Chairman of the House, Ways and Means Committee, held a mark-up hearing on April 29 to begin an effort to determine which expired tax provisions should be extended permanently. At the April 29 hearing, the Committee approved six bills which would to permanently extend various expired tax provisions, not including the Low-Income Housing Tax Credit minimum 9% rate or the New Markets Tax Credit (NMTC). The Committee plans to hold several similar hearings over the next few months, of which the Housing Credit and NMTC will certainly be included.
Story Update April 4, 2014: On April 3 Senate Finance Committee amended and then approved by voice vote tax extender legislation (“Expiring Provisions Improvement Reform and Efficiency (EXPIRE) Act”). This legislation extends dozens of expiring and expired tax provisions. Drafted by Finance Committee Chair Ron Wyden (D-Ore) and Ranking Member Orrin Hatch (R-Utah) announced the Committee. Key highlights from the legislation include:
- 9% Credit Rate Freeze for the Low-Income Housing Tax Credit Program
The low-income housing tax credit program provides a tax credit over a period of ten years after a housing facility occupied by low-income tenants is placed-in-service. The credit earned each year generally depends on three factors – the investment in the building, the portion of the building devoted to low-income units, and a credit rate (called the “applicable rate”). When the program was created, the applicable rate was 9%. As interest rates have declined, so has the amount of tax credits that can be used to build a LIHTC project. In 2008, Congress adjusted the formula and set a minimum credit amount of 9%, which is based on the original credit rate when the program was created. The provision, originally scheduled to expire at the end of 2013, was extended once, and was effective for housing credit dollar amount allocations made before January 1, 2014. This proposal would extend the expiration date by changing the deadline to allocations made before January 1, 2016. A two year extension of this provision is estimated to cost $4 million over 10 years.
- 4% Credit Rate Freeze for the Low-Income Housing Tax Credit Program (Added on 4/3/14)
The Chairman’s modification establishes a 4% minimum credit rate under the Low-Income Housing Tax Credit (LIHTC) Program for the acquisition of existing housing that is not Federally subsidized. Any existing housing that is also financed with tax-exempt bonds is not eligible for the 4% minimum credit rate. The minimum credit rate applies to buildings placed in service after the date of enactment with respect to which credit allocations are made before January 1, 2016. This provision is estimated to cost $49 million over ten years.
- Treatment of military basic housing allowances under low-income housing credit
The bill extends a provision whereby any military basic housing allowance received by an active member of the military is not considered income for purposes of calculating whether an individual qualifies as a low-income tenant for the low income housing tax credit program. The provision expired at the end of 2013. The proposal would continue this treatment for two additional years. A two year extension of this provision is estimated to cost $49 million over 10 years.
- New Markets Tax Credits
Through the New Markets Tax Credit (NMTC) program, the federal government is able to leverage federal tax credits to encourage significant private investment in businesses in low-income communities. The program provides a 39 percent tax credit spread over 7 years. The bill extends the New Markets Tax Credit for two years, permitting a maximum annual amount of qualified equity investments of $3.5 billion. A two year extension of this provision is estimated to cost $1.8 billion over 10 years.
- Credit for construction of new energy efficient homes
The bill extends for two years, through 2015, the credit for the construction of energy-efficient new homes that achieve a 30% or 50% reduction in heating and cooling energy consumption relative to a comparable dwelling constructed within the standards of the 2003 International Energy Conservation Code (including supplements). A two year extension of this provision is estimated to cost $612 million over 10 years.
- Credit for nonbusiness energy property (Section 25C) (Added 4/3/14)
The modification extends for two years, through 2015, the 10 percent credit for purchases of energy efficient improvements to existing homes. Homeowners can claim up to $200 for energy efficient windows, up to $150 for an efficient furnace or boiler, and up to $300 for other improvements, including insulation. The total credit is capped at $500 per taxpayer. The modification also adjusts the qualification requirements by requiring windows, doors, and skylights to meet the most recent Energy Star requirements; by adjusting qualifications for water heaters and boilers to better reflect what is available on the market; and by allowing energy efficient roofing products to qualify. A two year
extension of this provision is estimated to cost $1.65 billion over 10 years.
- Section 45 and 48 renewables (Added 4/3/14)
Under current law, taxpayers can claim a 2.3 cent per kilowatt hour tax credit for wind and other renewable electricity produced for a 10-year period from a facility that has commenced construction by the end of 2013 (the wind production tax credit). They can also elect to take a 30 percent investment tax credit instead of the production tax credit. The modification extends these credits through December 31, 2015. A two year extension of this provision is estimated to cost $13.35 billion over 10 years. The production credit was notably absent in the initial draft legislation.
- Energy efficient commercial buildings deduction (Added 4/3/14)
The modification extends for two years, through 2015, the deduction for energy efficient commercial buildings. Taxpayers may deduct up to $1.80 per square foot for an efficiency improvement of at least 50 percent. The improvement can be made through efficient lighting systems, heating, cooling, ventilation, and hot water systems. The modification also updates qualifying efficiency standards to a more stringent level, and it allows tribal governments and non-profits to allocate the deduction to designers. This provision is estimated to cost $304 million over 10 years.
Senator Wyden has indicated that the extenders package is a priority for the committee that will serve as a possible “bridge” to a broader tax overhaul. In a statement released by Chairman Wyden indicated that, “This bipartisan extenders package is the product of a Finance Committee that came together to provide needed certainty to the economy, protect jobs and maintain important priorities for working families,” Wyden said in a statement. “With that said, I am determined this will be the last extenders bill on my watch. It’s high time we focus on creating a new, 21st-century tax code, because the status quo is unacceptable.”
“For far too long Washington has acted to extend long-standing tax policy, rarely shining a spotlight on the individual provisions or their impact on the families and businesses that benefit from them. Such dysfunction must come to an end,” said Hatch. “This pared back bill demonstrates to the American people that Congress can and will make the tough decisions needed to help clean up our broken tax code. It’s imperative to allow the Committee to work its will and a markup will provide members with ample opportunity to thoroughly examine these provisions.”
The Constitution requires that all tax legislation originate in the US House of Representatives so no further action is likely in the Senate unless the House passes a tax vehicle that the Senate legislation can be attached to and short-term prospects in the House are very uncertain. Ways & Means Committee Chairman Dave Camp (R-Mich.) has indicated that his committee will take up tax extenders in the near future; however, the committee intends to first hold hearings to consider which programs should be made permanent and which should be eliminated entirely rather than attempt to pass a temporary extender bill.
View the EXPIRE ACT legislation (4/1/2014)
View the committee EXPIRE ACT summary (4/1/2014)