House Tax Reform Bill Eliminates HTC, NMTC; Eliminates Private Activity Bonds

The House Ways and Means Committee has released the full text of its Tax Cuts and Jobs Act. The Committee plans to begin markup on the proposed legislation on November 6, with plans for a House floor vote sometime in mid-November. Several changes within the code would drastically change the landscape of affordable housing development:

Low Income Housing Tax Credit
As outlined by the framework, the Low Income Housing Tax Credit has been retained in the House Ways and Means bill. That said, two proposed changes would significantly decrease the efficacy of the LIHTC:

    1. Elimination of Private Activity Bonds

Unfortunately, the bill repeals tax exempt private activity bonds which includes those used with the 4% LIHTC program. As 4% credits must be paired with tax exempt bonds, doing away with tax exempt private activity bonds ends the 4% program. The 4% portion of the LIHTC program accounts for roughly 40% of LIHTC development and is a key tool for the efficient practice of rehabbing and preserving preexisting affordable housing.

    1. Lower Corporate Tax Rates Impact Equity Pricing

The Tax Cuts and Jobs Act also indirectly hurts the 9% LIHTC program by reducing the corporate tax rate to 20%. Less tax liability for corporations results in the devaluation of tax credits. The equity pricing fallout experienced after the 2016 election was due to the possibility of a lowered corporate rate. It is worth noting that the majority of the affordable housing industry assumed a corporate rate reduction to 25% in computing equity pricing, an even lower corporate rate of 20% would result in even lower equity pricing.

While proposed legislation currently exists in the House and Senate calling for improvements to the LIHTC (which would combat the loss in credit value), such proposed language was not included in the bill.

Historic Tax Credit
The bill terminates the Rehabilitation Tax Credit (commonly referred to as the “Historic Tax Credit”). Termination of this program is an odd decision given the aim of the bill is to further the American economy. A recent study from the National Parks Service describes the credit as not only a job and economic booster – creating nearly 2.5 million jobs, but perhaps most importantly as a revenue generator for the US Treasury – in its history the program has generated $29.8 billion in tax revenue while issuing only $25.2 billion in tax credits.

New Markets Tax Credit
The bill also terminates the New Markets Tax Credit. Again, this decision does not comport with the bill’s aim of improving the US economy. A recent report shows that just in the past year, this program was responsible for creating 36,000 jobs in areas of high poverty, creating healthcare facilities, manufacturing plants, and schools. While this program was already planned to sunset in 2019, two House Republicans introduced two separate bills this year both calling to make the NMTC a permanent program.

What You Can Do
Contact your representatives in congress and let them know how important these programs are to your business and your community. Advocacy materials are provided below. If you have any questions, do not hesitate in reaching out to Christian Robin at NH&RA for assistance by email or phone at 202-939-1787.

ACTION Campaign advocacy materials – while retaining the LIHTC is appreciated, tell Congress why improvements to the LIHTC are more important now than ever and why private activity bonds are vital to affordable housing.

Historic Tax Credit Coalition advocacy materials – tell Congress to retain the Historic Rehabilitation Tax Credit.

New Markets Tax Credit Coalition advocacy materials – tell Congress to retain the New Markets Tax Credit.