The One and Done 2014 Tax Extenders Bill

Published by Michael Novogradac on Thursday, December 4, 2014 - 12:00am

Amid ongoing legislative wrangling, the House has passed a tax extenders bill: Retroactively extending for one year (through the end of 2014) most temporary tax provisions that expired at the end of 2013. It fell short of the hopes of both those who wanted a more permanent or long- term solution and those who wanted to eliminate many of the provisions.

President Barack Obama’s veto threat of a tentative bipartisan legislative deal on draft tax extenders legislation, which would have made many of the provisions permanent, sent House members back to the table and resulted in the fallback legislation.

The bill, called “The Tax Increase Prevention Act of 2014 (H.R. 5771),” extends more than 50 tax provisions for another year—most of them retroactively through 2014—and makes a handful of technical corrections.

The legislation includes several provisions of interest to the tax credit community:

  • An extension of the temporary minimum rate for low-income housing tax credits (LIHTCs) for non-federally subsidized buildings. This extends the 9 percent floor on LIHTC allocations made before Jan. 1, 2015.
    • The LIHTC floor extension allows developments that receive an allocation before the end of the year to have an annual 9 percent applicable percentage rate, which allows more equity to go into a development to make it financially feasible.  Unfortunately, because most LIHTC allocating agencies have already made allocations based on the floating rate, the one-year extension will not be very helpful.  A 4 percent rate floor for acquisition costs associated with allocated LIHTC developments, which the Senate Finance Committee included in its extender bill, the EXPIRE Act, wasn’t included in the bill.  It is interesting to note that Joint Committee on Taxation estimated that this provision costs less than $500,000.
  • An extension through 2014 of the military housing allowance exclusion for determining whether a tenant in certain counties is considered low-income.
    • Excluding the military basic housing allowance from determining low-income status expands the number of potential residents for LIHTC buildings and allows more military members to be eligible for low-income housing.
  • An extension of the new markets tax credit (NMTC) through the end of 2014, which would allow the award of an additional $3.5 billion in NMTC allocation authority in the spring.
  • An extension of the production tax credit (PTC) for wind and certain other renewable energy sources for those facilities which begin construction before the end of 2014.
    • This means that if construction begins this calendar year, then investments, including wind-based facilities, will be eligible for tax credits.
    • This provision was targeted for elimination by several influential groups, so the fact it survives to live another day is an achievement.
    • It is interesting to note that even though the necessary start date is less than 30 days away, the Joint Committee on Taxation estimated that this provision costs nearly $10 billion ($9.57 billion, to be exact).
  • An extension of 50 percent bonus depreciation to property acquired and placed in service during 2014 (or 2015 for certain properties with a longer production period).
    • This allows taxpayers to take 50 percent bonus depreciation for properties placed in service this year. Many LIHTC or other rental real estate and renewable energy investors will benefit from this provision, while others will elect not to take the more rapid write-offs.

The tax-extenders legislation would ultimately ensure that the NMTC and PTC continue to exist and that the projects that depend on those credits can get the financing they need. It also reaffirms House support of the LIHTC minimum-rate policy, even if the one-year extension won’t have much of a practical effect.

All eyes are now on the Senate and the White House to assess whether they resign themselves to the House one-year extension bill, or strive to resuscitate discussions of a more expansive tax extenders bill.  A more expansive bill is unlikely, but remains possible.

In any event, when the 114th Congress convenes in January and begins discussion of tax reform, all the aforementioned issues—as well as the dozens of other tax provisions included in H.R. 5771—will again be up for discussion.  And if tax reform doesn’t advance as the 2016 presidential election approaches, attention will quickly shift back to yet another extenders bill.

Tune into the Tax Credit Tuesday podcast for more information.