The House of Representatives released a year-end legislation package today that includes a $1.4 trillion omnibus fiscal year (FY) 2021 spending bill, a $900 billion COVID-19 relief bill and a set of tax proposals, including tax extenders and community development tax incentives. The House and Senate are expected to pass the bills today and the bills are expected to be signed by the president before the current continuing resolution expires at the end of the day.

Novogradac will summarize the FY 2021 omnibus in a subsequent post.

Highlights of the COVID-19 relief legislation include:

• $25 billion in emergency rental assistance (see state estimates below),
• An extension of the CDC Eviction order to Jan. 31, 2021,
• $600 stimulus checks for income-qualified single taxpayers and $1,200 for joint fliers with $600 per qualifying child,
• $300 per week in enhanced unemployment insurance benefits starting after Dec. 26 and ending March 14, 2021,
• $325 billion in additional small business assistance:
  • $284 billion for first and second forgivable Paycheck Payment Program (PPP) loans; expanded PPP eligibility for nonprofits and local newspapers, TV and radio broadcasters; key modifications to PPP to serve the smallest businesses and struggling nonprofits; and better assistance for independent restaurants,
    • $15 billion of the PPP amount is dedicated for lending though CDFIs and MDIs,
    • PPP program is extended through March 31, 2021.
  • $15 billion in dedicated funding for live venues, independent movie theaters and cultural institutions, and
  • $20 billion for targeted Economic Injury Disaster Loan (EIDL) grants, which are critical to many smaller businesses on Main Street.
• $12 billion to community development financial institutions (CDFIs) and minority depository institutions (MDIs) for targeted emergency investments to help low-income and minority communities withstand the economic impact of the COVID-19 pandemic and respond to the unprecedented economic downturn:
  • $9 billion for emergency Treasury capital investment to CDFIs and MDIs to support lending in low-income and underserved communities, including persistently poor counties, and
  • $3 billion for emergency support for CDFIs through the CDFI Fund to respond to the economic impact of the pandemic on underserved low-income and minority communities.

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Community Development Tax Incentives

Low-Income Housing Tax Credit

After years of advocacy by low-income housing tax credit (LIHTC) champions, one of the leading proposals from the Affordable Housing Credit Improvement Act (AHCIA, S. 1703, H.R. 3077) and Moving Forward Act (H.R. 2) to establish a 4% minimum LIHTC rate for acquisition LIHTCs and tax-exempt private activity bond-financed developments was included in year-end tax legislation attached to final FY 2021 appropriations. This is a tremendous achievement for affordable housing community and will make thousands of properties financially feasible.

The provision is effective for acquisition LIHTCs allocated after Dec. 31 and for bond-financed properties placed in service and receiving allocations from private activity bonds issued after Dec. 31. It is unclear whether properties that initially receive bond allocations or bond drawdowns before Dec. 31, but then receive subsequent allocations or drawdowns after Dec. 31, are eligible to receive 4% rate on the entire LIHTC basis. Further guidance from IRS is likely needed.

See below for Novogradac’s national and state estimates on the effect of the 4% floor (for further background, see Novogradac’s original 4% floor analysis here):

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Furthermore, Congress included a $1.2 billion allocation of disaster LIHTC authority for the 11 states and Puerto Rico that experienced non-COVID-19 major disasters in 2020 that qualified for Federal Emergency Management Agency (FEMA) individual and individual and public assistance (i.e., disaster zones) with an overall cap of no more than 65% of the respective state LIHTC ceiling. Congress granted LIHTC properties in disaster zones an additional 12 months to satisfy the 10% test and placed-in-service deadline, as well as giving allocating agencies more flexibility to allocate disaster authority by allowing disaster LIHTCs to be carried over to 2022. See below for estimates.

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30-year ADS deprecation

The bill will allow Real Property Trades or Businesses that elect out of interest limitation to use 30-year Alternative Depreciation System (ADS) for residential rental property placed in service before Jan. 1, 2018.

NMTC

In another tremendous achievement for community development, the new markets tax credit (NMTC) was extended five years to 2025, continuing the $5 billion in annual NMTC allocation authority first established for 2020.

RETC/Energy Efficiency Tax Incentives

The renewable energy production tax credit (PTC) received an extension for properties that begin construction by the end of 2021 at 60% of its original amount, as was the case for 2020. The renewable energy investment tax credit (ITC) was extended at 26% for another two years for properties that begin construction through end of 2022. Offshore wind was extended through 2025 and waste heat to power property was added to ITC eligibility.

The Internal Revenue Code (IRC) Section 179D commercial property energy efficiency deduction, which can be used for multifamily housing energy efficiency upgrades, was made permanent and is eligible for improvements meeting above-industry energy-efficiency standards in the year in which the homes are placed in service. The energy-efficiency standards are updated and deduction rate is indexed for inflation. Lastly, the IRC Section 45L new energy-efficient home tax credit of up to $2,000 per unit was extended through end of 2021. If it were enacted, an AHCIA provision would allow the use of the ITC, 45L credit, and 179D deduction without reducing LIHTC basis.

Opportunity Zones

Despite the efforts of advocates, Congress did not include reporting requirements or any extensions of opportunity zones deadlines.

Next Steps/Outlook for 2021

Congress is poised to pass and the president is poised to sign the legislative package. This legislation represents the final likely legislative vehicle for community development-related tax incentives for 2020.

Looking to the incoming Biden administration and the 2021 congressional agenda, House Ways and Means Committee Chairman Richard Neal, D-Massachusetts, has expressed his intent to consider comprehensive infrastructure legislation in 2021, which could provide an opportunity to advance affordable housing and community development-related tax incentives, including a new federal infrastructure tax credit, permanence for the NMTC, improvements to the historic tax credit, extensions/expansions of renewable energy tax incentives, and many, if not all, AHCIA provisions. This legislation is likely to be largely based on H.R. 2, the Moving Forward Act, which passed the House in July.  Novogradac estimated H.R. 2 would finance more than 1 million additional affordable rental homes (and see this link for Novogradac’s H.R. 2 state estimates). Stay tuned.

Note: This updates to correct the percentage for PTC properties that begin construction by the end of 2021 and to correct the total of LIHTC disaster allocation authority. Also updates to eliminate reference to new markets tax credit and alternative minimum tax.