Extenders Deal Makes Minimum 9 Percent LIHTC Permanent, Extends NMTC Through 2019, Extends PTC Through 2016

Published by Michael Novogradac on Wednesday, December 16, 2015 - 12:00am

On Dec. 15, House and Senate leadership announced a $650 billion extenders bill that extends or makes permanent several temporary tax provisions, including several of note for the affordable housing, community development and renewable energy communities.

The bill:

  • makes permanent the minimum 9 percent low-income housing tax credit (LIHTC) applicable percentage or rate for federally unsubsidized developments,
    • (the bill does not include a provision to establish a minimum 4 percent for LIHTC used to finance the acquisition of existing property)
  • extends the new markets tax credit (NMTC) for five years at $3.5 billion annually through 2019,
  • makes permanent the military housing allowance exclusion for LIHTC income qualification for personnel stationed at or near certain military bases for determinations made before Jan. 1, 2017,
  • extends bonus depreciation for five years through 2019, at 50 percent for the first three years and phased down over the next two,
  • phases-down the renewable energy production tax credit (PTC) over five years for facilities for which construction has commenced before Jan. 1, 2020
    • in 2015-2016, the bill extends the PTC at 100 percent or prior law levels
    • in 2017, the bill provides 80 percent of prior law levels
    • in 2018, the bill provides 60 percent of prior law levels
    • in 2019, the bill provides 40 percent of prior law levels
    • in 2020, the PTC would expire,
  • phases down the election to treat wind facilities as energy property under the section 48 investment tax credit (ITC) for facilities for which construction has commenced before Jan. 1, 2020
    • in 2015-2016, the bill provides 100 percent of prior law levels
    • in 2017, the bill provides 80 percent of prior law levels
    • in 2018, the bill provides 60 percent of prior law levels
    • in 2019, the bill provides 40 percent of prior law levels
    • in 2020, the ability to claim the election would expire.
  • phases-down the 30 percent renewable energy investment tax credit (ITC) over five years for facilities for which construction has commenced before Jan. 1, 2022
    • in 2017-2019, the bill provides an extension of the 30 percent ITC
    • in 2020, the bill provides a 26 percent ITC
    • in 2021, the bill provides a 22 percent ITC
    • in 2022, the 30 percent ITC will expire, leaving the 10 percent ITC,
  • phases down the temporary credit for solar residential energy‐efficiency property for three additional years through 2019
    • in 2020, the bill provides a 26 percent credit
    • in 2021, the bill provides a 22 percent credit
    • in 2022, the credit would expire.
  • extends the section 45L credit for energy-efficient new homes for homes in buildings of three stories or fewer acquired before Jan. 1, 2017,
  • and extends the section 179D energy-efficient commercial and multifamily buildings deduction for buildings of four stories or more for improvements based on updated Standard 90.1-2007 of the American Society of Heating, Refrigeration and Air Conditioning Engineers (ASHRAE) and placed in service before Jan, 1, 2017.

In addition to these key provisions, the bill also permanently extends:

  • the research and development tax credit, with some modifications
  • increased section 179 expensing limits,
  • state and local sales tax deductibility,
  • four charitable-related provisions (conservation easements, tax-free IRA distributions, food donations, etc.),
  • active financing exception under subpart F,
  • two S corporation-related provisions: reduced recognition period for built-in gains and basis adjustment to stock of S corps,
  • 15-year straight line cost recovery for restaurants and retail properties,
  • a provision that allows interest-related and short-term capital gain dividends from regulated investment companies (RIC) to be passed to foreign investors and RIC exclusion from withholding under the Foreign Investment in Real Property Tax Act
  • parity for employer-provided mass transit and parking benefits
  • deduction for teachers’ out-of-pocket classroom expenses, and
  • enhancements originally enacted in the American Recovery and Reinvestment Act of 2009 (ARRA), with modifications and program integrity provisions to the earned income tax credit (EITC), child tax credit (CTC), and the American Opportunity Tax Credit, which is a credit for qualified education expenses paid for an eligible student for the first four years of higher education.

The full House will consider the extenders bill on Dec. 17. The Senate could consider it shortly thereafter on Dec. 18, but if some Senators decide to slow consideration, it could take until Dec. 22 for final passage. The president is expected to sign it.