Senate Approves Tax Cuts and Jobs Act with Some Changes from Committee-passed Version
Published by Michael J. Novogradac on Saturday, December 2, 2017 - 12:00AM
[Updated: 2017-12-05 9:05 a.m.]
On Dec. 2, the Senate passed the Tax Cuts and Jobs Act by a party-line 51-49 vote. Sen. Bob Corker, R-Tenn., was the only Republican senator voting no. Prior to final passage, the Senate incorporated a manager’s amendment that made several changes to the tax provisions of the Senate Finance Committee-approved bill from Nov. 16. See below for a brief overview of changes relevant to tax credits.
For the low-income housing tax credit (LIHTC), the Senate bill includes an amendment from Sen. Pat Roberts, R-Kan., that would:
- Replace the existing law exception to the general public use requirement for existing and future artist housing properties with a new exception for veterans.
- Automatically provide a 25 percent basis boost to 9 percent LIHTC developments located in rural areas as defined under section 520 of the Housing Act of 1949. For such rural properties, it would remove the current law discretion that state agencies have on providing a 30 percent basis boost.
According to the Joint Committee of Taxation, there is a slight cost to the rural housing provision, even though a state’s overall 9 percent LIHTC authority is unchanged. The amendment proposed to offset that cost by reducing the basis boost percentage for all properties from 30 to 25 percent, but it is anticipated that changes to the offset will be considered during a House-Senate conference. The provisions of the Affordable Housing Credit Improvement Act of 2017 (AHCIA), co-sponsored by Senate Finance Committee Chairman Orrin Hatch, R-Utah, and Sen. Maria Cantwell, D-Wash, previously added to the chairman’s mark of the bill were not included in the bill passed by the Senate, likely because they were found in violation of the Byrd Rule, which does not permit provisions without a revenue impact from being included in a budget reconciliation bill.
Base Erosion and Anti-abuse Tax
As a means of protecting the tax base of foreign-owned corporations or U.S. corporations with significant foreign operations, the amended Senate bill imposes essentially an international alternative minimum tax on those corporations. That “base erosion minimum tax” likely will prevent several significant corporate investors from claiming tax credits like the LIHTC, new markets tax credit (NMTC), historic tax credit (HTC), renewable energy investment tax credit (ITC) and production tax credit (PTC).
An amendment from Sen. Charles Grassley, R-Iowa, would help address this issue by allowing qualifying taxpayers to potentially avoid losing the value of tax credits in years they are subject to the BEAT..
Alternative Minimum Tax (AMT)
As amended, the Senate bill restores the alternative minimum tax (AMT) for individuals but increases the AMT exemption amounts and phase-out thresholds. Furthermore, the amended Senate bill restores the current corporate AMT. The restoration of the corporate AMT could adversely affect existing and future NMTC investments, as the NMTC cannot be used to reduce the corporate or individual AMT. The added significance is because the corporate tax rate decreases from 35 percent to 20 percent, but the current AMT rate is 20 percent. Furthermore, the final six years of the renewable energy production tax credit (PTC) also cannot be used to reduce AMT liability. Fortunately, thanks to the Housing and Economic Recovery Act of 2008, the LIHTC and the historic tax credit can be taken against corporate and individual AMT.
Other Major Provisions
- Bonus depreciation - The amended Senate bill allows 100 percent expensing through 2022, and then phases bonus depreciation down through 2026.
- SALT property tax - As in the House-passed bill, the amended Senate bill provides a deduction for state and local property tax up to $10,000.
- Pass-through deduction - At urging of Sens. Ron Johnson, R-Wis., and Steve Daines, R-Mont., the amended Senate bill increases the deduction of business income for pass-through entities from 17.4 percent to 23 percent.
Given the differences between the House and Senate versions of the Tax Cuts and Jobs Act, House leadership announced Dec. 1 its intention to go to conference with the Senate to reconcile these differences during the week of Dec. 4. It is expected that a conference committee will meet on Dec. 5 or 6 to draft and approve a conference report. Given the very narrow margin in the Senate, it is expected that the final bill and conference report will likely be closer to the Senate version that the House.
The conference report would then be voted upon in the House and Senate shortly thereafter. If approved, the president is expected to sign the bill into law.
Given this very tight timeline and the major differences between tax credit and bond provisions in the House and Senate bill, advocates should reach out to their members of Congress—House and Senate—to urge them to retain:
- tax exemption of private activity bonds, as in Senate bill
- 2018-19 rounds of the NMTC, as in Senate bill
- Senate version of the HTC: 20 percent taken over 5 years, and
- Current law phasedown of ITC and PTC, as in Senate bill.