On December 22 President Trump signed into law HR 1 – the GOP’s tax overhaul plan. The new law includes the following:
- Retains the Low Income Housing Tax Credit without modification
- Retains Private Activity Bonds, including those used for housing and the 4% LIHTC
- Lowers the top corporate rate from 35% to 21%, impacting Housing Credit Pricing
- Creates the Base Erosion and Anti-Abuse Tax (BEAT)
- This tax will create a disincentive for some investors with foreign operations from investing in the LIHTC, however, 80% of the housing credit’s value will be exempt from this tax
- Retains the New Markets Tax Credit
- Retains the 20% Historic Tax Credit with modifications
- Credit must be claimed over 5-year period rather than immediately
- Eliminates the pre-1936 10% credit
- Repeals the Corporate Alternative Minimum Tax
- Retains nontaxable status for like kind exchanges of real property (all other types of property trades will now be taxable)
- Retains ability of real property trade or business to deduct net interest expenses (partnerships will need to make an election to do so)
- Creates alternative depreciation schedules for Electing Real Property Trade or Business
- Creates a new tax deduction of 20 percent for pass-through businesses (some restrictions apply)
- Creates a three-year holding period for long-term capital gain treatment for carried interests for certain kinds of partnerships, including real estate;
- Limits the ability of corporations to receive certain state and local subsidies on a tax-free basis.
Several aspects of the legislation will require additional guidance issued by the IRS in the coming months.
NH&RA will continue to provide additional in-depth analysis on the legislation, transition rules, forthcoming IRS guidance and the business implications measure in general in the days and weeks to come.
You can also learn more about the impact of this legislation from industry experts at upcoming NH&RA events including the NH&RA Tennessee Developers Symposium on January 17 in Nashville and the NH&RA Annual Meeting in Palm Beach Feb. 21-25, where we will dedicate a significant portion of the programming to the tax measure and how it will impact tax credit development and multifamily operations..
Additional industry analysis from NH&RA Member Firms can be found at the following links:
- Applegate & Thorne-Thomsen: Initial Thoughts on Conference Committee Report on the Tax Cut and Jobs Act
- Novogradac & Company: The Tax Cuts and Jobs Act: Effects on Low-Income Housing Tax Credit Properties and DevelopmentsNovogradac & Company
Advocacy in 2018
Novogradac has estimated that the tax bill will reduce affordable housing production by nearly 235,000 units. GOP leadership has indicated they will consider a follow-up tax bill in 2018, and NH&RA, along with the ACTION Campaign, will continue advocating for modifications to keep the Housing Credit whole in technical corrections or other follow-on tax legislation. This includes advocating for modifications to the Housing Credit formula to sustain the Credit’s production potential including the common-sense proposals in the Affordable Housing Credit Improvement Act, S. 548 and H.R. 1661.