On December 4, the House of Representatives passed a motion to go to conference on the tax reform bill, which was agreed to by the Senate on December 6. It is during this process that the House and Senate will reconcile differences between their two versions of the Tax Cuts and Jobs Act.
Nine Republicans from the House and eight from the Senate have been nominated as conferees to carry out this task along with a list of Democrats who will have limited say in the process. Congress is moving at a fast pace and this may be the affordable housing industry’s last opportunity to act. NH&RA is asking that members reach out to their representatives in Congress with the number one priority of preserving Private Activity Bonds so that the 4% credit may continue. If Housing Bonds are repealed, roughly 800,000 affordable homes would not be built or preserved over the next decade, according to analysis from Novogradac & Company. While the Senate language preserves PABs, the House version of the Tax Cuts and Jobs Act repeals PABs. Additionally, industry members should urge their representative to exempt the Housing Credit from the Base Erosion and Anti-Abuse Tax (BEAT) to encourage affected institutions to invest in America, and also to keep the Housing Credit basis boost at 30%.
The full list of House Republican conferees is:
- Conference Chair: Ways and Means Chairman Kevin Brady (R-TX-8)
- Rep. Devin Nunes (R-CA-22)
- Rep. Peter Roskam (R-IL-6)
- Rep. Diane Black (R-TN-6)
- Rep. Kristi Noem (R-SD-at large) *co-sponsor of Affordable Housing Credit Improvement Act (H.R. 1661)
- Rep. Rob Bishop (R-UT-1)
- Rep. Don Young (R-AK-at large) *co-sponsor of H.R. 1661
- Rep. Greg Walden (R-OR-2)
- Rep. John Shimkus (R-IL-15) *co-sponsor of H.R. 1661
The full list of Senate Republicans is:
- Orrin Hatch (R-UT) *co-sponsor of Affordable Housing Credit Improvement Act (S. 548)
- Mike Enzi (R-WY)
- Lisa Murkowski (R-AK) *co-sponsor of S. 548
- John Cornyn (R-TX)
- John Thune (R-SD)
- Rob Portman (R-OH) *co-sponsor of S. 548
- Tim Scott (R-SC) *co-sponsor of S. 548
- Pat Toomey (R-PA)
The United States Senate narrowly approved its version of tax reform legislation on a 51-49 vote on Saturday, December 2. All Democrats voted against the bill, in addition to Senator Bob Corker (R-TN). The Senate version of the bill retains the Low Income Housing Tax Credit (Housing Credit) and private activity bonds, including multifamily Housing Bonds, which are essential for the production of roughly half of Housing Credit developments because they trigger the 4 percent Housing Credit. The Senate bill also makes several modifications directly and indirectly impacting the Housing Credit, outlined below.
The new version of the bill includes an amendment filed by Senator Pat Roberts (R-KS), which would make several additional changes to the Housing Credit:
- Expand the Housing Credit general public use requirement exception to include veterans, and
- Treat rural areas as difficult development areas for purposes of receiving a basis boost. This provision is offset by reducing the maximum basis boost for all types of boost-eligible developments from 130 to 125 percent. The reduced basis boost could make some properties financially infeasible, and we have and will continue to express those concerns as final negotiations progress.
The version of the bill approved by the Senate Finance Committee included several no-cost proposals to strengthen the Housing Credit, taken from the Cantwell-Hatch Affordable Housing Credit Improvement Act (S. 548), but these provisions were not included in the version of bill that was voted on Friday night.
The corporate tax rate in the adopted measure is 20 percent, which would reduce the tax benefits associated with the Housing Credit, credit pricing and ultimately affordable housing production. We will continue to seek a compensatory adjustment to sustain affordable housing production in a lower corporate rate environment in future tax legislation.
In addition, there is a provision related to a “base erosion and anti-abuse” tax that would eliminate banks’ ability to use the Housing Credit to offset certain taxes related to foreign earnings and earnings going to foreign parent companies, which will impact some Housing Credit investors.
The Senate passed version retains the New Markets Tax Credit as well as a provision that would preserve the 20 percent Historic Tax Credit in a modified form. To comply with budget rules, the provision spreads out the release of the HTC over the five year compliance/recapture period (or 4% per year). The ten percent historic tax credit was eliminated.
A few changes of note were also made to the Senate’s bill shortly before it was passed that are unrelated to housing tax credits but important to businesses generally:
The Senate bill increases the deduction for pass-through entities from 17.4% to 20%. The change was made to appease a few Republicans including Sens. Ron Johnson (R-WI) and Steve Daines (R-MT). The House version of the bill changes current law from taxing pass-throughs at the individual rate to a 25% tax rate.
Corporate Alternative Minimum Tax
Repeal of the Corporate Alternative Minimum Tax (AMT) was scrapped last-minute to help offset certain costs including property tax deductions and larger tax breaks for small businesses. The AMT is currently set at 20%, and corporations pay the higher of the 35% tax rate (all tax breaks included) or the minimum 20% rate without most tax breaks – corporations rarely end up paying the AMT as the 35% corporate tax rate even after deductions and tax credits still tends to come out higher than 20%. Because the newly proposed corporate tax rate is 20%, an alternative minimum tax at 20% would serve as the de facto corporate tax rate. This means corporations would no longer be able to claim the benefit of tax credits like the corporate research tax credit. The Low Income Housing Tax Credit could still be taken against the AMT for buildings placed in service after 2007. The House bill repeals the AMT.
Action Still Necessary!
Efforts are still underway to incorporate language improve the legislation with respect to the LIHTC and Historic Rehabilitation Tax Credit in the conference committee process.
Working in conjunction with the ACTION Coalition, we strongly encourage all NH&RA members to continue to reach out to Republican Senators and Representatives to urge them to contact their leadership and tax committee chairs to insist that the final legislation preserve these critical programs. While we remain concerned about the impact of the lower corporate tax rate on affordable housing and will continue to seek opportunities to make changes to sustain affordable housing production in light of a reduced corporate tax rate, the threat of the elimination of Housing Bonds requires our full attention.
Outreach to the Senate:
- We urge everyone to reach out to your Republican senators, both on and off the Finance Committee, and urge them to communicate to Finance Committee Chairman Orrin Hatch (R-UT) and Majority Leader Mitch McConnell (R-KY) their support for the Housing Credit and Housing Bonds as well as the Historic and NMTC and tell them to make sure they retain these programs in the final legislation as negotiated with the House.
Outreach to the House:
- For those with representatives serving on the conference listed above, it is of the utmost importance to speak with that representative. Otherwise, urge your Republican House members to communicate to Ways and Means Committee Chairman Kevin Brady (R-TX) and House Speaker Paul Ryan (R-WI) their support for retaining the Housing Credit and restoring Housing Bonds, the Historic Credit and NMTCs in any final legislation as negotiated with the Senate.
See our Advocacy Toolkit for:
- Sample letters to Congress requesting support for the Housing Credit and Housing Bonds in tax reform
- Talking Points on Multifamily Housing Bonds
- Novogradac & Company analysis of the Tax Cuts and Jobs Act’s impact on affordable housing (House and Senate), including the impact of the House tax reform bill and the Senate tax reform bill in each state
- The ACTION Campaign statement on the Tax Cuts and Jobs Act