On December 20, 2017, the U.S. Congress passed the joint House-Senate conference committee agreement on HR 1, the Tax Cuts and Jobs Act. HR 1 is the most far-reaching tax reform legislation in over three decades. For affordable housing providers the bill fully preserves private activity bonds; preserves the low-income housing tax credit; and exempts the housing credit from the base erosion and anti-abuse tax at 80%.
CLPHA and other housing stakeholders are pleased we were able to successfully preserve and protect private activity bonds—including multifamily housing bonds, historic preservation tax credits, new markets tax credits, and low-income housing tax credits in the final tax bill. However, the agreement did not make adjustments to the housing tax credit that would offset the impact of the lowered corporate tax rate from 35% to 21%. Failure to make this adjustment will reduce the value of housing credits to corporate investors.
An adjustment that was included is the 80% exemption for the low-income housing tax credit from the base erosion and anti-abuse tax (BEAT). Without the exemption from the BEAT, many investors—particularly foreign-owned banks—that account for 10% to 25% of capital invested in the housing credit would be less inclined to invest in the housing tax credit. BEAT is aimed at companies that move money offshore to lower their tax liability in the United States by imposing a minimum tax on foreign transactions, reducing the need for companies to buy tax credits.
The conference agreement rejected a Senate provision under the housing credit that would have reduced the basis boost available to properties designated by the states or developed in low-income and “high-cost” areas from 30% to 25%; and, rejected a Senate provision under the housing credit that would remove the safe harbor under current law for tenants engaged in artistic and literary activities.