Congressional leaders today released a fiscal year (FY) 2018 omnibus appropriations bill that includes several tax provisions, including an expansion of the low-income housing tax credit (LIHTC).

The LIHTC provisions were included in the bill along with a correction to Section 199A enacted in tax reform to address the tax advantage that cooperatives have as compared to other businesses, a top priority for congressional Republicans.

Below is a summary of the LIHTC provisions.

Allocation Cap Increase

The bill would provide a 12.5 percent increase in LIHTC allocations, starting in 2018 and lasting until 2021. The new 2018 per-capita amount would be $2.70 and the new small state minimum would be $3,105,000. For 2019-2021, annual inflation adjustments would be applied to the new 2018 allocation amounts. Barring an extension, the LIHTC annual allocation in 2022 would revert to current law, adjusted for inflation. Novogradac estimates that this provision will increase production by approximately 28,400 affordable rental homes over 10 years compared to current law.

Income Averaging

In addition to allocation cap increase, the bill includes a provision from the Affordable Housing Credit Improvement Act (AHCIA, S. 548, H.R. 1661) to create an income-averaging option in addition to the current low-income requirements. Currently, household incomes in LIHTC properties cannot exceed 60 percent of the area median (AMI) at move-in. The maximum housing expense (rent, utilities and required fees) is correspondingly restricted.

This provision would allow certain apartments in a LIHTC property to be available to residents earning up to 80 percent of AMI, so long as the development-wide average is 60 percent or less.

Allowing income averaging permits a broader mix of incomes and makes developing LIHTC properties attractive in places where it now is difficult, such as:

• high housing cost areas,
• sparsely populated low-income areas, where finding enough renters earning less than 60 percent of the AMI to justify construction of new property is difficult,
• low-income neighborhoods in need of revitalization, and
• existing developments in need of preservation, but where tenant incomes have risen over the years.

Overall

While these LIHTC provisions together could increase affordable rental housing production and preservation by more than 28,400 homes, they would not offset the 235,000 affordable rental home deficit because of tax reform. Nevertheless, the proposal represents the first expansion of the LIHTC in 10 years. And, if the temporary allocation increase is made permanent, it would bring affordable rental housing production from the 9 percent allocated LIHTC program to levels close to pre-tax reform.

Next Steps

The House is expected to vote on the FY 2018 omnibus bill Thursday and the Senate is expected to follow shortly thereafter before the current continuing resolution expires on Friday. Subscribe to Novogradac’s Industry Alerts to stay informed on the bill.