Reports Indicate Extenders Deal Will Include Permanent 9 Percent LIHTC Minimum Rate, Short-Term NMTC and PTC Extensions

Published by Michael Novogradac on Tuesday, December 15, 2015 - 12:00am

As negotiations between House and Senate leadership narrow in on an approximately $700 billion tax-extenders bill that is expected to be released tonight, hints of the package’s current shape have begun to surface.

At the time of this writing, reports indicate the bill will extend or make permanent several temporary tax provisions, including several of note for the affordable housing, community development and renewable energy communities.

If current reports are accurate, the bill will:

  • make permanent the minimum 9 percent low-income housing tax credit (LIHTC) applicable percentage or rate for federally unsubsidized developments,
  • extend the new markets tax credit (NMTC) for between two and five years at $3.5 billion annually, possibly with an adjustment for inflation,
  • extend 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,
  • extend bonus depreciation for five years through 2019, at 50 percent for the first two years and phased down over the next three,
  • phase-down the renewable energy production tax credit (PTC) over five years for facilities for which construction has commenced before Jan. 1, 2020,
  • phase-down the 30 percent renewable energy investment tax credit (ITC) over five years for facilities either placed in service or for which construction has commenced before Jan. 1, 2020,
  • extend the section 45L credit for energy-efficient new homes for homes in buildings of three stories or fewer acquired before Jan. 1, 2017, and
  • extend 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.

It’s important to note the bill does not include a provision to establish a minimum 4 percent for LIHTC used to finance the acquisition of existing property. It should also be noted that the fate of the renewable energy tax provisions are reportedly linked to the proposal to repeal the oil export ban. Talks about the renewable energy provisions are purportedly quite fluid, and are the most likely to change.

In addition to these key provisions, reports also suggest the bill would make several other high-profile temporary tax provisions permanent, hence the estimated $700 billion estimated cost. Again, negotiations are ongoing, but sources indicate those provisions made permanent will likely include:

  • 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, 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
  • deduction for teachers’ out-of-pocket classroom expenses, and
  • enhancements originally enacted in the American Recovery and Reinvestment Act of 2009, with modifications and program integrity provisions to the earned income tax credit (EITC) 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.

As noted above, a deal has not been publicly reached on the final extenders bill and as negotiations continue some of these predictions could change. Novogradac & Company is tracking the developing situation closely and will update this summary as more information becomes available.