Notes from Novogradac
As the opportunity zone (OZ) incentive continues to gather momentum and interest, Novogradac has been tracking and compiling data on opportunity funds and their plans. In June, a post in this space provided the results of an initial survey of funds raised and related information. Since that writing, activity in the OZ community has continued and based on Novogradac research the amount of capital raised by qualified opportunity funds (QOFs) is nearly $2.5 billion.
On Aug. 30 the U.S. Department of Housing and Urban Development (HUD) published fair market rents (FMRs) for fiscal year (FY) 2020 in Federal Register Vol 84 No. 169. While HUD continuously strives to provide the most accurate FMRs, it is constrained by the data that is available. Occasionally, a user will believe that the FMRs calculated by HUD do not accurately reflect the rents for the area.
As more and more developers are exploring the average income minimum set-aside, one of the looming questions is how income limits should be calculated for units that are not using the 50 percent and 60 percent limit that are published by HUD for low-income housing tax credit (LIHTC) and tax-exempt bond developments.
The need for affordable rental housing nationwide is obvious. However, the cause of this shortfall is multifaceted. A recent survey and accompanying report produced by the National Apartment Association (NAA) provides more insight into some of those factors by examining what is preventing multifamily housing–both market-rate and affordable–from being built.
In July, California Gov. Gavin Newsom signed Assembly Bill 91, Loophole Closure and Small Business and Working Families Tax Relief Act of 2019 (A.B. 91). A.B. 91, authored by Assemblywoman Burke, Chair of the Assembly Committee on Taxation, selectively conforms California law to certain changes introduced in the 2017 federal tax reform bill (H.R. 1). It is estimated that A.B.
According to anecdotal reports, in 2018 many low-income housing tax credit (LIHTC) developers opted for their properties to use the average income minimum set-aside (AI). The number doubtless has increased dramatically in 2019. Some buildings may be under construction or have even been placed in service.
Low-income housing tax credit (LIHTC) allocating agencies have their work cut out in implementing the average income minimum set-aside (AI). The Internal Revenue Code (IRC) leaves many aspects unresolved. One of the most important is Section 42(g)(1)(C)(ii)(I): The provision uses the word “designate” but does not define what it means.
The new markets tax credit (NMTC) has been subject to reauthorization since 2006-most recently through the Protecting Americans from Tax Hikes Act (PATH Act, 2015) that extended the credit through calendar year 2019.
Congress last week moved closer to finalizing H.R. 3877, the Bipartisan Budget Act of 2019, a two-year $2.7 trillion budget deal that would raise spending caps for fiscal years (FY) 2020 and 2021 and suspend the debt limit until July 31, 2021. The bill raises nondefense spending by $25 billion (4 percent) in FY 2020 compared to the FY 2019 spending cap, and $79 billion (15 percent) more than current law FY 2020 spending cap as mandated by the Budget Control Act of 2011 (BCA), but $9 billion less than the amount set by the House earlier this year when drafting its FY 2020 spending bills.
Two bills recently introduced in Congress would retroactively alter rights of existing owners of low-income housing tax credit (LIHTC) properties; one bill changes the terms of rights of first refusal (ROFR) and the other alters qualified contract exit price calculation. Part I of this blog post reviewed rights of first refusal. Part II below reviews qualified contracts.
Two bills recently introduced in Congress would retroactively alter rights of existing owners of low-income housing tax credit (LIHTC) properties: One bill changes the terms of rights of first refusal (ROFR) and the other alters qualified contract exit price calculation. Part I of this blog post reviews rights of first refusal. Part II will address qualified contracts.
The Affordable Housing Credit Improvement Act of 2019 (AHCIA) proposes an unprecedented expansion and modification of the low-income housing tax credit (LIHTC).
In May, Novogradac began surveying the funds listed on Novogradac’s Opportunity Funds Listing as to dollars raised and investment plans. The opportunity funds are listed as a free service to potential community development funding recipients. The information listed is based on information provided to Novogradac by the listed contact person for each company.
Last year Congress enacted a new tool to extend the reach of the low-income housing tax credit (LIHTC) to meet the country’s varied affordable rental housing needs: the average income test. Since its enactment, the option has generated a lot of discussion and raised many questions about its implementation. Now, as developers and states have started using the average income test option, its applicability can be better assessed.
In 2017, LIHTC properties’ overall expenses grew 2.3 percent while their revenue grew 2.7 percent, according to the Novogradac 2019 Multifamily Rental Housing Operating Expense Report-Survey and Analysis of LIHTC Properties. This difference in growth resulted in the largest year-over-year NOI increase (3.3 percent) seen in eight years.
One of the most important provisions of the Affordable Housing Credit Improvement Act (AHCIA) of 2019 is the proposal to increase 9 percent allocations. This provision is justified by the tremendous unmet need for more affordable rental housing production.
Novogradac projects nearly 66,000 additional rental homes could be financed from 2020 to 2029 if a provision is enacted to establish a minimum 4 percent floor for low-income housing tax credits (LIHTCs) generated by tax-exempt private activity bonds issued for multifamily housing. This would greatly enhance the LIHTC, an incentive that the National Council of State Housing Agencies’ 2017 Factbook reports is already responsible for the creation of more than 1 million affordable rental homes from 1987 through 2017.
Today, Sens. Maria Cantwell, D-Wash.; Johnny Isakson, R-Ga.; Ron Wyden, D-Ore.; and Todd Young, R-Ind. introduced S. 1703 the Affordable Housing Credit Improvement Act of 2019 (AHCIA). This comprehensive low-income housing tax credit (LIHTC) legislation builds on a similar bill introduced in 2017 during the last Congress, S. 548. Reps. Suzan DelBene, D-Wash.; Kenny Marchant, R-Texas; Don Beyer, D-Va.; and Jackie Walorski, R-Ind.
As noted in this space last month, overall expenses for low-income housing tax credit (LIHTC) properties in 2017 grew by 2.3 percent, a return to previous norms. However, while the overall LIHTC operating expense growth was more in line with the trend previous years, the Novogradac 2019 Multifamily Rental Housing Operating Expense Report-Survey and Analysis of LIHTC Properties found that one category of expenses for LIHTC properties saw a sizable increase in 2017: real estate taxes.
As part of a research effort focusing on underserved markets, Freddie Mac last year published a paper studying why Middle Appalachia is one of the hardest-to-serve housing markets, particularly for renters. Middle Appalachia is a rural region stretching from southern Ohio to western North Carolina on both sides of the Appalachian Mountains. As Freddie Mac reports, market factors facing the region are part of the reason Middle Appalachia is an underserved housing market, including population losses, low median incomes and the prevalence of persistent poverty counties.
The House Appropriations Transportation-HUD (THUD) Subcommittee released its $75.8 billion fiscal year (FY) 2020 spending bill May 22, which was approved by the subcommittee earlier today.
The budget for California’s next fiscal year is expected to be completed in the next month and through the budget process, leadership will determine the extent to which the state will provide state income tax opportunity zones (OZ) incentives to encourage investment in distressed communities. This process is an important opportunity for California to leverage this new community development tool to enhance the efficiency of other state, county or city programs that have limited resources.
After some volatility in 2015 and 2016, the year-over-year change in overall expenses for low-income housing tax credit (LIHTC) properties in 2017 was more in line with the previous norms: an increase of 2.3 percent, according to according to the Novogradac 2019 Multifamily Rental Housing Operating Expense Report-Survey and Analysis of LIHTC Properties.
Previous posts in this space have discussed the oft-overlooked housing needs of rural America and the need to shine a light on how rural areas, just like their urban counterparts, are struggling to meet the affordable housing needs of their residents.
This month, Inclusiv, formerly known as the National Federation of Community Development Credit Unions, will present the third of three webinars for its members about the New Markets Tax Credit (NMTC) program.
The second tranche of opportunity zones (OZ) regulations have provided renewable energy tax credit (RETC) investors additional clarity. This is particularly welcome for investors wishing to claim an investment tax credit (ITC) for a solar property in conjunction with the OZ inventive and it’s possible this additional clarity will help some investors move off the fence.
About the OZ Incentive
As investors, business owners and fund managers, and their tax advisors, continue to review the recently released proposed opportunity zones (OZ) regulations, a number of issues and likely effects have been identified, and many continue to be discussed and evaluated. Additional guidance and clarification will be needed from Treasury and the Internal Revenue Service on many of these issues and possible effects.
The second tranche of opportunity zones (OZ) guidance released today brings added regulatory clarity for investors, fund managers and others seeking to bring much needed equity capital to operating and real estate businesses in OZs. The 169 pages of proposed regulations include updates to portions of previously proposed regulations. The 169-page volume of regulations necessitates a two-part blog post.
In August 2018 the Office of the Comptroller of the Currency (OCC) released an advanced notice of proposed rulemaking (ANPR) soliciting public comment on reform of Community Reinvestment Act (CRA) regulations. Nearly 1,500 national, state and local organizations and businesses submitted comments to OCC in response to the ANPR, a sample, comprised of key affordable housing and community development associations and sta
Recently, community development financial institutions (CDFIs) from around the country meet for a two-day conference in Washington, D.C. It was the first public appearance for new CDFI Fund Director Jodie Harris, who replaced Annie Donovan when she stepped down in early January. In addition to Harris’s keynote address, there was also a CDFI Fund panel comprised of the new deputy director for policy and programs as well as staff from certification, compliance monitoring and evaluation, financial strategies and research, the grant-based programs and bond guarantee program offices.
The Internal Revenue Service (IRS) released 2019 population figures in Notice 2019-19, indicating the 2019 low-income housing tax credit (LIHTC) ceiling and tax-exempt private activity bond (PAB) cap for all states will increase. From 2018-2019, the U.S. population increased by 1,448,256 people to 327,167,434 in total, representing a 0.4 percent gain. U.S. territories lost more than 140,000 people, a 3.8 percent decrease.
On March 12, House Ways and Means Committee Members Terri Sewell, D-Ala.; Tom Reed, R-N.Y.; Jason Smith, R-Mo.; and Senators Roy Blunt, R-Mo.; and Ben Cardin, D-Md., introduced the New Markets Tax Credit Extension Act of 2019 (H.R. 1680, S. 750).
The Trump administration today released its $4.7 trillion fiscal year (FY) 2020 budget request, which includes $750 billion in defense spending including overseas contingency operations and other adjustments and $567 billion for nondefense spending including adjustments. The proposed base nondefense discretionary spending cap is $543 billion, a cut of $54 billion from FY 2019 spending cap.
Any question about the level of interest in proposed Internal Revenue Service (IRS) regulations concerning the opportunity zones (OZ) incentive was answered last Thursday.
On Feb. 14, Congress passed H.J. Res. 31, the Consolidated Appropriations Act, 2019 including fiscal year (FY) 2019 funding for Homeland Security, the Agriculture; Commerce, Justice, and Science; Financial Services and General Government, Interior and Environment; State and Foreign Operations; and Transportation-HUD (THUD) annual spending bills, averting another partial federal government shutdown that would have begun after the temporary stop-gap funding bill, the continuing resolution was scheduled to expire on Feb. 15.
As part of tax reform signed into law on Dec. 22, 2017, a new tax, the base erosion and anti-abuse tax (BEAT), was implemented on international corporate taxpayers. The BEAT is intended to provide a new minimum tax for international taxpayers who make payments to overseas affiliates.
After a delay related to the 35-day partial government shutdown, the U.S. Treasury Department’s Community Development Financial Institutions (CDFI) Fund awarded more than $142 million in Capital Magnet Funds (CMF) during its fourth funding round for fiscal year (FY) 2018 on Feb. 13. The 38 awardees were selected from 116 applications, which requested more than $570 million in awards this CMF round.
As changes to Community Reinvestment Act (CRA) regulations are considered and developed, it is imperative to consider how those changes could affect regulated financial institutions and their investment and lending activities.
In the affordable housing community, the concept of opportunity areas has drawn increasing interest and consideration, particularly in recent research. For housing advocates, understanding what constitutes a high opportunity area and how living there can benefit low-income residents will inform decisions on where to locate affordable rental housing so that the best possible outcomes are realized by residents.
Like little children on the eve of their birthday, from tenant to landlord to investor, people around the country are anxiously awaiting the 2019 Department of Housing and Urban Development (HUD) income limits (or maybe it is just the few of us who have chosen to read this blog post). Either way as the calendar turns to a new year, our thoughts turn to HUD income limits.
When will income limits be released?
Since the expiration of the continuing resolution to fund portions of the federal government, including the Treasury Department, on Dec. 21, the Community Development Financial Institutions (CDFI) Fund has suspended its services, including access to the CDFI Fund help desks and the CDFI Fund Awards Management Information System (AMIS). Because non-essential CDFI Fund staff, including New Markets Tax Credit (NMTC) program office staff, have been furloughed the partial U.S.
New data about existing affordable rental housing paints a worsening picture of the affordable housing crisis. Recent research by the University of Pennsylvania shines a light on the potential loss of more than 1 million homes of federally subsidized housing from the affordable housing stock. The major threats to affordable housing are highlighted, including how changes in funding can lead to housing loss. Current events put this particular risk factor in stark relief – the ongoing partial government shutdown is exacerbating and accelerating the problem of preservation, with 1,150 U.S.
On Jan. 3, the first day of the 116th Congress, the House of Representatives passed H.R. 21, the Consolidated Appropriations Act including funding for the Agriculture; Commerce, Justice, and Science; Financial Services and General Government, Interior and Environment; State and Foreign Operations; and Transportation-HUD (THUD) annual spending bills, enabling the federal agencies the bills fund to reopen during the partial government shutdown that began Dec. 21.
The Community Development Financial Institutions (CDFI) Fund recently released a summary report and public data on new markets tax credit (NMTC) investments through fiscal year (FY) 2016. Updated annually, the data once again reflects the flexibility of the NMTC with respect to the types of businesses financed with flexible or non-traditional rates and terms.
With Democrats taking control of the House, of the numerous issues that may find their way to Congress’s 2019 docket, infrastructure is one of the most notable. Infrastructure saw much fanfare in 2017 through mid-2018, especially with the release of the administration’s infrastructure principles in February, but progress stalled because of lack of agreement. And now, the subject is seeing renewed interest as infrastructure is one of the few major issues that could garner bipartisan support in the current political climate.
How we got Here
In November, the Community Development Financial Institutions (CDFI) Fund released data that reveal the diversity of institution types (i.e. banks, credit unions, loan funds and venture funds), products and services offered by CDFI Fund awardees, and resulting impacts in low-income communities.
The New Markets Tax Credit (NMTC) program was authorized as part of the Community Renewal and Tax Relief Act of 2000. Since then, the Community Development Financial Institutions (CDFI) Fund has made 1,105 awards totaling $54 billion in tax credit authority. Out of the pool of successful allocatees, only 12 awards or approximately 1 percent have gone to either an affiliate of a credit union (Self Help Ventures Fund) or the sponsor of a credit union (Hope Enterprise Corporation).
What Credit Unions should know about the NMTC
Harvard’s Joint Center for Housing Studies (JCHS), as part of its ongoing analysis of the State of the Nation’s Housing Report, recently released a look at characteristics of older adult households. Housing America’s Older Adults 2018, the latest in a series of JCHS reports on housing older adults, looks at 2016 data for older adult households, those headed by individuals 50 years of age or older.
Forty years ago this month–Nov. 6, 1978–President Jimmy Carter signed legislation that created America’s first federal historic tax credit (HTC), a 10 percent investment tax credit for commercial buildings that were at least 20 years old and retained at least 75 percent of their existing walls.
Not all states issue multifamily private activity bonds (PABs) each year, and the number of states issuing no multifamily PABs has varied widely since 2000, according to data reported by the Council of Development Finance Agencies (CDFA). The lowest number of states issuing no multifamily PABs was 2003, with only seven states reporting no issuance of multifamily PABs. With the onset of the financial crisis, that number grew to 30 in 2011. As the nation recovered, the number of states issuing no multifamily PABs fell to 10 in 2016, increasing slightly to 11 in 2017.
As more and more developers and state agencies explore income averaging, one of the biggest questions is what happens if a unit goes out of compliance. Unfortunately, this is a difficult question to answer without knowing the details of the low-income housing tax credit (LIHTC) project, and in some cases without more information from the IRS. This discussion will examine some of the most hotly discussed topics around non-compliance in LIHTC projects that have elected the average income minimum set-aside.
Impact of the Minimum Set-Aside
The Internal Revenue Service published Revenue Procedure 2018-55, announcing the amounts of unused low-income housing tax credit (LIHTC) carryovers allocated to qualified states for calendar year 2018. The $2.69 million of unused LIHTC carryovers was placed in a national pool and reallocated to 32 qualified states and Puerto Rico.
About the National Pool
Housing stakeholders often have difficult choices to make due to various constituent needs, housing policy directives, and limited resources with which to work. As 2020 approaches, another issue is looming on the horizon: low-income housing tax credit (LIHTC) properties that will start to reach “year 30,” the year in which some LIHTC properties are no longer obligated to adhere to income and affordability requirements.
The Office of the Comptroller of the Currency (OCC) is currently soliciting comments in connection with an advance notice of proposed rulemaking (ANPR) aimed at updating the regulations that implement the Community Reinvestment Act (CRA) of 1977. The original intent of the CRA was to help meet the credit needs of the communities that banks serve.
Novogradac projects more than 65,000 additional rental homes could be financed from 2019 to 2028 if a provision is enacted to establish a minimum 4 percent floor for low-income housing tax credits (LIHTCs) generated by tax-exempt private activity bonds issued for multifamily housing. This would greatly enhance the LIHTC, an incentive that the National Council of State Housing Agencies’ 2016 Factbook reports is already responsible for the creation of more than 1 million affordable rental homes from 1987 through 2016.
While tax reform is projected to reduce the amount of affordable rental housing production financed by the low-income housing tax credit (LIHTC) by about 235,000 over 10 years, there existed prior to tax reform and still ex
On Nov. 6, Democrats took control of the House while Republicans retained control of the Senate. According to the Associated Press, Democrats have been declared the winner in 220 House seats, Republicans in 194 seats and 21 seats are still uncalled. Of those 22 races, Democrats are leading in nine, and Republicans are leading in 12. Assuming those races proceed as predicted, and the leading candidates in the 21 uncalled races are eventually confirmed, Democrats will have 229 seats in the House and Republicans will have 206.
In 2017, the 50 states and the District of Columbia reported issuing a record $15.3 billion in multifamily rental housing bonds, representing a 9.3 percent increase from the previous record $14 billion reported issued in 2016, according to the Council of Development Finance Agencies (CDFA). The $21 billion in reported combined multifamily and single family mortgage revenue bond issuance represents a 13.6 percent increase in the portion of the cap used for housing from 2016, when states reported a total of $18.5 billion for housing bond issuance.
Time and again, one of the criticisms of the low income housing tax credit (LIHTC) is that housing it finances is disproportionately located in high poverty and/or racially segregated communities. Moreover, many of these critics claim that the LIHTC stakeholders are actively exacerbating the problem by purposely siting LIHTC developments in high poverty and racially segregated communities.
Lame-duck sessions of Congress–the final weeks of a two-year term, those that follow an election–are a Rubik’s Cube of legislative periods. There are multiple moving pieces, each affecting others.
For affordable housing, community development and historic preservation advocates, the 2018 lame-duck session could be fertile ground for long-desired legislation. Or Congress could decide to work on the bare minimum before heading home for the holidays. It depends on moving pieces and how they each affect others.
(Updated Monday, Oct. 22, 2018, 8:25 a.m.)
The Internal Revenue Service (IRS) has moved one step closer to releasing long-awaited guidance on the Opportunity Zones (OZ) incentive. On Sept. 12, the IRS sent proposed OZ regulations to the Office of Information and Regulatory Affairs (OIRA), a division of the White House Office of Management and Budget (OMB).
Now that the opportunity zone (OZ) nomination and designation process has been completed and the Internal Revenue Service (IRS) has published an initial list of 15 frequently asked questions, community and economic development practitioners and policy makers are now focusing on soon to be released proposed regulations from the IRS.
Some believe the affordable housing crisis is an urban or even inner-city problem, but new research from the Housing Assistance Council (HAC) highlights the fact that there is a crisis in rural America as much as there is for urban American. Furthermore, HAC’s research shows that not only has the low-income housing tax credit (LIHTC) proven instrumental in creating affordable housing but it has also created this housing in rural parts of the country where the need for such housing is greater than many imagine.
The Internal Revenue Service (IRS) is currently working on guidance on how the qualified opportunity zone (OZ) benefit under Internal Revenue Code (IRC) 1400Z-2 will be administered. Thus far, the IRS has posted a list of Frequently Asked Questions about OZs with additional guidance in the form of interim regulations anticipated in the very near future.
On Sept. 13, the U.S. Census Bureau the released the 2017 American Community Survey (ACS) data. With the release of the 2017 ACS data, Novogradac & Company is able to estimate the national median income, state median incomes as well as low-income housing tax credit (LIHTC) income limits for many areas through 2020.
About the Calculations
The (ACS) is an integral part of HUD’s calculation of area median income. The 2018 ACS data will be used by HUD to calculate the 2020 income limits for LIHTC and Section 8 properties.
On Aug. 31, the U.S. Department of Housing and Urban Development (HUD) released the fair market rents (FMR) for fiscal year (FY) 2019.
Under H.R. 6627, legislation introduced by two members of the House Ways and Means Committee, Reps. Jason Smith, R-Miss., and Terri Sewell, D-Ala., an additional $1 billion in new markets tax credit (NMTC) allocation authority would become available to community development entities (CDEs) that commit to investing in rural jobs zones. The legislation defines a rural jobs zone as any area outside a city or town with a population of 50,000 or more and its immediate adjacent urbanized area, using the definition of areas eligible for assistance under the U.S.
Each year the U.S. Department of Housing and Urban Development (HUD) publishes a list of difficult to develop areas (DDAs). Low-income housing tax credit properties located in areas that are designated as DDAs are eligible for a 130 percent boost in eligible basis for determining the amount of LIHTCs a building can generate.
The 2018 income data released by the U.S. Department of Housing and Urban Development (HUD) provide an opportunity to examine trends nationally as well as at the local market level.
Nationally, the income data illustrates a stark contrast in the nation’s economy today as compared to four years ago. Below is the area median income (AMI) map Novogradac published showing the change from 2013 to 2014 (red represents negative income growth while green is positive growth).
In the seven years Novogradac has analyzed operating and expense data for low-income housing tax credit (LIHTC) properties, operating expenses for buildings geared toward senior tenancy have been consistently lower than for family properties.
The gap between operating expenses for low-income housing tax credit (LIHTC) properties that are acquired and rehabilitated and those that are newly constructed is the largest it’s ever been, according to the 2018 Novogradac Multifamily Rental Housing Operating Expense Report-Survey and Analysis of LIHTC Properties.
Late last month the Joint Committee on Taxation (JCT) released its Estimates of Federal Tax Expenditures for Fiscal Years 2017-2021. As in years past, the report highlights the comparatively low cost of the low-income housing tax credit (LIHTC), historic tax credit (HTC), renewable energy production tax credit (PTC), renewable energy investment tax credit (ITC), and new markets tax credit (NMTC) compared to other tax expenditures.
Until 2015, operating expenses for low-income housing tax credit (LIHTC) properties grew at a fairly consistent pace. And while there was growth in 2015, year-over-year change was much slower than in years past, increasing just 1.3 percent.
The Senate Appropriations Transportation-HUD (THUD) Subcommittee approved its $71.4 billion fiscal year (FY) 2018 spending bill June 7.
At the time of this writing, eight state low-income housing tax credit (LIHTC) allocating agencies have made statements or issued guidance about how they will implement the new set-aside option known as income averaging (IA). Other allocating agencies around the country likely will look to these examples.
The House Appropriations Transportation-HUD (THUD) Subcommittee approved its $71.8 billion fiscal year (FY) 2018 spending bill May 15, which is expected to be approved by the full House Appropriations Committee May 23.
Twenty-five years of affordable housing conferences have gathered thousands of development, investment and compliance professionals to discuss the opportunities and challenges they were facing at the time. Looking back at those challenges and opportunities, Michael Novogradac, CPA, shared some lessons and strategies gleaned from those years for attendees at Novogradac's 25th Annual Affordable Housing Conference yesterday in San Francisco.
The bond market for affordable multifamily housing in California took a step back in 2017.
A year after the California Debt Limit Allocation Committee (CDLAC), which is responsible for administering the state’s tax-exempt private activity bond program, issued $4.8 billion in 2016 to help fund rental housing developments, the amount dropped to $3.4 billion in 2017 – a 30 percent decrease. The result was 114 properties funded in 2017, a drop from 179 funded in 2016.
Released today, the White House’s proposed rescissions package calls for $15.4 billion in appropriated funds to be voided. Much of the proposed rescinded funding was approved in prior year spending bills, but some of the appropriations were approved in March as part of the fiscal year 2018 omnibus spending bill.
The U.S. Department of Housing and Urban Development (HUD) last week released its fiscal year (FY) 2018 allocations for various block grant programs, including for the Housing Trust Fund (HTF).
Population increases reported by the Internal Revenue Service (IRS) in Notice 2018-45 mean the 2018 low-income housing tax credit (LIHTC) ceiling and tax-exempt private activity bond (PAB) cap for all states will increase. The nation’s population grew by 0.8 percent during the period ending July 1, 2017.
The Treasury Department last week designated 1,312 qualified opportunity zones (OZs) in Alabama, Delaware, Missouri, Ohio, Texas and the Northern Marianas Islands. Last week’s announcement brings the total number of states and territories in which OZ designations have been certified by Treasury to 20 and four, respectively, and the total number of OZs to 4,831.
The Consolidated Appropriations Act, 2018, also known as the omnibus spending bill, made two changes to the low-income housing tax credit (LIHTC). In addition to increasing the amount of LIHTC volume cap by 12.5 percent over the next four years, Congress created a new occupancy set-aside option known as “income averaging” (IA).
As previously discussed in this space, Novogradac estimates that the tax bill enacted in December would have reduced the future supply of affordable rental housing by about 235,000 rental homes nationwide over the next 10 years.
It’s a great down payment, but don’t confuse it with paying the full bill.
The low-income housing tax credit (LIHTC), continues to serve the nation’s most vulnerable households, according to “Understanding Whom the LIHTC Program Serves: Data on Tenants in LIHTC Units as of December 31, 2015,” a U.S. Department of Housing and Urban Development’s (HUD) report released March 20, 2018.
Congressional leaders Wednesday announced agreement on a $1.29 trillion fiscal year (FY) 2018 omnibus spending bill, of which nearly $700 billion was for defense and $591 billion for nondefense.
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.
The Federal Housing Finance Agency (FHFA) recently released the 2018-2020 Enterprise Housing Goals, which remain relatively unchanged from 2015-2017 levels. The FHFA, as required by the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, sets the mortgage purchase goals for the housing government sponsored enterprises (GSEs), Fannie Mae and Freddie Mac.
The U.S. Department of Housing and Urban Development (HUD) has set a target release date for new income limits of April 1 of each year. In 2011, HUD set a target release date for income limits of Dec. 1 of every year. However, in 2015 Congress changed how the extremely low-income limit was determined, making it infeasible for HUD to be able to achieve the Dec. 1 income limit release target.
As noted in a recent client alert, opportunity zones (OZs), the new community development tool authorized in the tax law enacted in December, represent the first new tax incentive for private capital in low-income communities since the creation of the new markets tax credit (NMTC) in 2000.
The release of Fannie Mae’s and Freddie Mac’s Securities and Exchange Commission 10-K filings for 2017 show that while single family volume decreased over 2016, multifamily volume increased.
With the award of calendar year 2017 new market tax credits (NMTC), the total amount allocated through the program stands at $54 billion. The CDFI Fund allocated $3.5 billion in tax credit authority to 73 community development entities (CDEs), which are again expected to invest more in operating businesses than real estate projects, continuing a trend that began in 2011. This round, the funds awarded to CDEs investing in operating businesses and real estate accounted for $3.419 billion of the total $3.5 billion awarded.
The Trump administration released its $4.4 trillion fiscal year (FY) 2019 budget request Feb. 12, which includes $716 billion in defense discretionary spending and $540 billion for nondefense discretionary spending, a cut of $49 billion from FY 2018 spending cap and $57 billion from the FY 2019 spending cap. Of the nondefense discretionary budget, the administration requested $41.2 billion (including $2 billion as proposed in the FY 2019 budget addendum) in gross U.S.
The understanding of equity and equity pricing can help guide understanding and effects of policy, as well as a glimpse at what proposed changes could mean for affordable housing production.
An observational study Novogradac & Company is conducting suggests anticipation of a reduction in the corporate tax rate has already reduced production of affordable housing by approximately 11 percent.
Small area fair market rent (SAFMR) were required to be implemented in 23 areas beginning Jan. 1. In addition, SAFMRs were already being used in Dallas, Texas, bringing to 24 the number of areas required to use SAFMRS.
Real estate economics are key drivers in the success or failure of mixed-use developments, even those using equity from historic tax credits (HTCs) and new markets tax credits (NMTCs)–something that’s becoming more and more evident as Novogradac & Company LLP provides market analysis for clients on a broad range of mixed-use properties. More and more investors, lenders, developers and others are recognizing the importance of deeper understanding of the real estate market.
Consider one recent investor who asked, “How many boutique hotels does one small town need?”
With the release in September of 2016 American Community Survey (ACS) data, Novogradac & Company was able to estimate the national median income, state median incomes as well as low-income housing tax credit (LIHTC) income limits for many areas for 2018 and 2019.
About the Calculations
The (ACS) is an integral part of HUD’s calculation of area median income. The 2016 ACS data will be used by HUD to calculate the 2019 income limits for LIHTC and Section 8 properties.
As 2018 begins it is a time to reflect and ask ourselves the important life changing questions like when will HUD publish income limits and will my limits increase or stay the same. Although we don’t have a crystal ball below is some need to know information about the FY 2018 HUD income limits.
When will income limits be released?
Understanding HUD’s income limits can be a difficult endeavor. Terms like high housing cost or and state non-metro median adjustment can turn off even the most ambitious user. However, this primer will help better explain how HUD determines income limits.
The 10 percent non-historic tax credit is history under the recently passed tax reform act, but perhaps more significant to those in the historic preservation world, the 20 percent historic tax credit (HTC) was retained and altered.
The final version of the legislation, which was signed into law Dec. 22 by President Donald Trump, eliminates the non-historic credit for buildings built before 1936 and requires that the 20 percent HTC be taken over five years, rather than when it was placed in service, as under current law.
The National Council of State Housing Agencies (NCSHA) today released its updated and revised “Recommended Practices in Housing Credit Administration” (RPs). Although technically not binding, the RPs are influential because they represent near consensus among allocators on low-income housing tax credit (LIHTC) policy.
A Dec. 23 ruling by a U.S. District Court means the determination of fair market rent (FMR) in two dozen of the nation’s largest metropolitan areas has come full circle. Much like how it is important to know what the U.S. Supreme Court actually held in the ICP v. Texas DHCA decision (as opposed to some of the reporting), interested parties should understand what the court’s opinion says and does.
One of the many unexpected areas of concern during tax reform was the fate of low-income housing tax credit (LIHTC) properties serving artists. Explaining the reason why involves a description of recent history and the applicable rules.
General Public Use
As described in Novogradac & Company analysis, the final version of H.R. 1, the Tax Cuts and Jobs Act would reduce the future supply of affordable rental housing by nearly 235,000 rental homes, a loss that will add to the already significant current gap in unmet needs for affordable rental housing nationwide.
In recent years a new term emerged: naturally occurring affordable housing (NOAH). The term may lead some to think of Mesa Verde cliff dwellings built in naturally occurring features.
According to Novogradac & Company analysis, the final version of the Tax Cuts and Jobs Act, tax reform legislation approved by the House-Senate conference committee on Dec.
(as of 2017-12-15 7:05 p.m. ET)
The House-Senate Conference Committee today approved the conference report containing the final version of the Tax Cuts and Jobs Act by a party-line 17-12 vote. The bill now goes to the full House and Senate next week for final passage, which is expected next week. The lone Republican to vote against the Senate bill, Sen. Bob Corker, R-Tenn., today announced his support for the final bill.
With all of the attention on tax reform efforts and potential changes to the tax code, companies should pause to consider and evaluate the impact that these changes could have on their financial reporting under generally accepted accounting principles (GAAP). For years many companies have developed tax strategies, utilizing both short-term and long-term tax credit investments, to reduce their overall tax liability.
[Updated: 2017-12-05 9:05 a.m.]
[Editor’s note: The bill as passed by the Senate Dec. 2 does not include these provisions. Read more here.]
As Congress continues to debate tax reform, how differences between the House and Senate bills will be reconciled in a final bill is crucial for affordable housing advocates. In particular, the tax exemption for private activity bonds (PABs) provides a stark contrast on what a post-reform tax code might mean for affordable housing.
The Senate Finance Committee advanced the Tax Cuts and Jobs Act Nov.16, moving the tax reform legislation to the full Senate for consideration. The 14-12 committee vote was along party lines and came the same day as the House of Representatives passed its version of the legislation.
For proponents of the federal historic rehabilitation tax credit (HTC) and the communities that benefit from the catalytic investments it promotes, tax reform legislation presents a dark option: Half or none.
[Updated: 2017-11-21 1:58 p.m.]
Today the Senate Finance Committee began its discussion and markup of the chairman’s mark of the Tax Cuts and Jobs Act. The chairman’s mark is significantly better for the New Markets Tax Credit (NMTC) program than the related House version released Nov. 2. The House bill, which was approved by the Ways and Means Committee last Friday, includes a termination of the NMTC after 2017, eliminating the 2018 and 2019 rounds.
[Updated: 2017-11-20 8:32 a.m.]
As described in Novogradac & Company analysis, as currently drafted H.R. 1, the Tax Cuts and Jobs Act would reduce the future supply of affordable rental housing by nearly 1 million rental homes, a loss of as much as two-thirds current affordable rental housing production.
During a time when affordable housing professionals are rightly focused on the threats and opportunities of tax reform, other important news can sometimes go unnoticed. A recent example occurred on Oct. 30 when the nation’s highest court effectively endorsed the concept of mandatory inclusionary zoning.
According to Novogradac & Company analysis, the Tax Cuts and Jobs Act, House Ways and Means Committee Chairman Kevin Brady’s landmark tax reform legislation would reduce the future supply of affordable rental housing by nearly one million units.
Updated:2017-11-08 12:41 pm
Now that the administration and congressional leadership has released a “unified tax reform framework,” tax reform deliberations are heating up in Washington, D.C., which have the potential to significantly affect the low-income housing tax credit (LIHTC) marke
The Internal Revenue Service (IRS) recently announced that 32 states have $2.75 million of additional low-income housing tax credits (LIHTCs) to allocate in 2017. These additional LIHTCs are the result of unused credits from 2016 being placed in the national pool and reallocated in 2017 to other states.
Between the extensive wildfires and nearly record-setting hurricanes, America is experiencing an unsettling degree of hell and high water. Keeping up with the news and regulatory responses to these natural disasters can be overwhelming.
The tax reform wolf is at the door.
For nearly seven years I have blogged about tax reform. Much like the shepherd boy from the Aesop fable, I repeatedly cried out that the tax reform wolf is coming. During these years I wondered, if the tax reform wolf comes, will people listen? I can’t say tax reform will get here, but the tax reform wolf is as close to arriving as at any time since I started blogging.
Today the Trump administration and Republican congressional leadership released a “Unified Tax Reform Framework,” outlining the consensus principles to guide consideration of tax reform in Congress this fall. The framework was largely drafted by the so-called “Big 6,” a group of congressional leaders and senior administration officials: House Speaker Paul Ryan, House Ways and Means Committee Chairman Kevin Brady, Senate Majority Leader Mitch McConnell, Senate F
Some states fail to use and then subsequently abandon some of their private activity bond (PAB) volume cap. When evaluating the cost of proposals affecting private activity bond cap utilization, the Congressional Joint Committee on Taxation (JCT) assumes that a certain amount of bond cap will continue to be abandoned annually. If the amount of abandoned bond cap increases, the cost of proposals such as the minimum 4 percent rate for tax-exempt bond financed low-income housing tax credit (LIHTC) developments that facilitate the usage of bond cap will in turn likely increase.
The Council of Development Finance Agencies (CDFA) bond data from 2000-2016 and the recent trends in private activity bond (PAB) markets provides useful insight into bond issuance and use trends.
Not all states issue multifamily private activity bonds (PABs) each year, and the number of states issuing no multifamily PABs has varied widely since 2000, according to data reported by the Council of Development Finance Agencies (CDFA). The lowest number of states issuing no multifamily PABs was 2003, with only nine states not issuing multifamily PABs. With the onset of the financial crisis, that number grew to 32 in 2011. As the nation recovered, the number of states issuing no multifamily PABs fell to 10 in 2016.
In 2016, the 50 states and the District of Columbia reported issuing a record $14 billion in multifamily housing bonds, representing 112 percent increase over the $6.6 billion reported issued in 2015, according to the Council of Development Finance Agencies (CDFA). The $18.5 billion in reported multifamily and single family mortgage revenue bond issuance represents a 65.3 percent increase in the portion of the cap going towards housing from 2015, when states reported a total of $11.1 billion for housing bonds issuance.
An important function of the LIHTC Working Group is providing input on LIHTC policies, regulations and guidance to decision makers. Most recently, the working group submitted comments to the National Council of State Housing Agencies (NCSHA) regarding the proposed revisions to its Recommended Practices in Housing Credit Administration. NCSHA created the first version of the recommended practices in 1993 and revised it several times since. Before the current draft, the most recent revision was in 2011.
At the time of this writing, 39 counties in Texas have been declared major disaster areas as a result of Hurricane Harvey. There are approximately 670 low-income housing tax credit (LIHTC) properties with approximately 89,900 units in these areas, according to estimates from the Texas Department of Housing and Community Affairs (TDHCA) and the U.S. Department of Housing and Urban Development (HUD).
On August 25, President Donald Trump declared Hurricane Harvey a major disaster. The initial declaration has since been expanded twice and as of August 31 includes Aransas, Bee, Brazoria, Calhoun, Chambers, Colorado, Fayette, Fort Bend, Galveston, Goliad, Hardin, Harris, Jackson, Jasper, Jefferson, Kleberg, Liberty, Matagorda, Montgomery, Newton, Nueces, Orange, Refugio, Sabine, San Jacinto, San Patricio, Victoria, Waller and Wharton counties.
Hurricane Harvey is clearly one of the worst disasters in many years. Owners of low-income housing tax credit (LIHTC) properties may be able to help with a crucial need: providing apartments for displaced households. The opportunity to do so likely will be national: after Hurricane Katrina, New Orleans residents relocated all over the country.
August is typically a quiet time for Congress and other policymakers in Washington, D.C. Members are home in their respective states and districts, and activity in the capital slows down as heat and humidity ramps up.
However, this August may end up being different–at least with respect to the tax policy front.
Discussions around tax reform can represent an important opportunity to support and defend community development tax incentives. So when Senate Finance Committee Chairman Orrin Hatch, R-Utah, in June requested recommendations for tax reform, the Novogradac & Company New Markets Tax Credit Working Group (NMTC Working Group) submitted recommendations on how the new markets tax credit (NMTC) could be retained and enhanced.
The New Markets Tax Credit (NMTC) program works as designed.
That’s the key takeaway of a 66-page report, Compliance Review of New Markets Tax Credit Program, that was released this week by the Community Development Financial Institutions (CDFI) Fund.
Each year the U.S. Department of Housing and Urban Development (HUD) publishes a list of difficult to develop areas (DDAs). Low-income housing tax credit properties located in areas that are designated as DDAs are eligible for a 130 percent boost in eligible basis for determining the amount of LIHTCs a building can generate.
The Senate Appropriations Transportation-HUD (THUD) Subcommittee approved its $60 billion fiscal year (FY) 2018 spending bill July 25. According to the committee press release, that funding level represents $2.4 billion (4.2 percent) more than FY 2017, $12.2 billion (25.4 percent) more than the administration’s FY 2018 request, and $3.6 billion (6.3 percent) more than the House FY 2018 THUD bill. For the U.S.
There may be good news on the horizon for “orphaned” renewable energy technologies that were left out of the Protecting Americans from Tax Hikes (PATH) Act, tax extender legislation passed in December 2015. These orphaned technologies became ineligible for renewable energy tax credits at the beginning of 2017 and include many different types of renewable energy technologies, such as fuel cells, small wind projects, combined heat and power and geothermal heat pumps. But fortunately, many legislators are sympathetic to the cause of getting tax credits for these technologies extended.
So far four individuals have been nominated for Senate-confirmed positions at the U.S. Department of Housing and Urban Development (HUD). Among their impressive backgrounds are extensive connections to the low-income housing tax credit (LIHTC) and other housing and community development programs.
The House Appropriations Transportation-HUD (THUD) Subcommittee released its $56.5 billion fiscal year (FY) 2018 spending bill July 10, which is expected to be approved July 11.
On June 2, the U.S. Department of Housing and Urban Development (HUD) published fiscal year (FY) 2017 HOME rent limits. The limits are effective June 15 for all units financed by HOME funds.
The U.S. Department of Housing and Urban Development (HUD) proposed changes to its methodology for calculating fair market rents (FMR), which is used for a number of low-income housing programs. In a nutshell, HUD believes the revised methodology would result in FMR calculations based on more statistically sound data. Comments on the proposed changes are due by June 26.
Existing FMR Calculation
Households earning minimum wage increasingly are priced out of apartments all over the country, as reported in the National Low-Income Housing Coalition’s (NLIHC) annual “Out of Reach” report. In this context, the Department of Housing and Urban Development’s (HUD) recent announcement of Housing Trust Fund (HTF) allocations is welcome news.
Representatives from the Internal Revenue Service, Community Development Financial Institutions (CDFI) Fund and Treasury Department shared a number of insights regarding the new markets tax credit (NMTC) and low-income housing tax credit (LIHTC) in remarks made May 24at the American Bar Association (ABA) Forum on Affordable Housing and Community Development. It’s important to note that the representatives did not speak on behalf of their respective agencies, but rather provided personal observations and reflections.
The Affordable Housing Credit Improvement Act of 2017 (AHCIA) includes several the provisions that affect boosts to eligible basis. If enacted, these provisions could make the low-income housing tax credit (LIHTC) more productive and effective.
Sens. John Hoeven, R-N.D., and Ron Wyden, D-Ore., reintroduced bipartisan legislation May 25 to establish a program to spur infrastructure investment through the creation of Move America Bonds and Move America Credits. The major benefit of the Move America Act of 2017 is that it includes the use of public-private partnerships, or P3s, to assist in financing infrastructure. The primary benefits of using P3s include:
The Trump administration released its $4.09 trillion FY 2018 budget request May 23, which includes $688 billion in defense discretionary spending and $479 billion for nondefense discretionary spending, a cut of $57 billion. Of the nondefense discretionary budget, the administration requested $40.7 billion in gross U.S.
One of the top priorities for both President Donald Trump and the 115th Congress includes promoting greater infrastructure spending and investment, and both have suggested a federal infrastructure tax credit (FITC) in some form as a powerful mechanism to do so. Before the November 2016 election, Trump campaign representatives Wilbur Ross (now Commerce Secretary) and Peter Navarro (White House National Trade Council Director) proposed a federal tax credit to generate investment in infrastructure projects.
On May 9 the television series FRONTLINE aired an installment titled “Poverty, Politics and Profit” (some of the content will air on National Public Radio in the coming weeks and has been published on NPR’s website).
Congressional leadership yesterday announced agreement on a $1.07 trillion fiscal year (FY) 2017 omnibus spending bill.
Overall 2017 was a very robust year for income limits; more than 80 percent of areas (88 percent of the population) saw an increase in the 50 percent very low-income (VLI) limit used for Section 8 rental assistance and multifamily tax subsidy projects (MTSP) when compared to the 2016 VLI income limits.
Kids cause more damage, seniors require more interaction.
Treasury Secretary Steven Mnuchin and White House National Economic Council Director Gary Cohn today participated in a briefing that outlined the core principles the Trump administration proposes should guide the development of tax reform legislation.
Business Tax Reform
The U.S. Department of Housing and Urban Development (HUD) report “Understanding Whom the LIHTC Program Serves: Data on Tenants in LIHTC Units as of December 31, 2014,” released April 11, reveals significant facts about how the low-income housing tax credit (LIHTC) is meeting the housing needs of low-income and disabled households.
Previously a discussion in this space illustrated the adverse effects of a reduced corporate tax rate and the House tax reform blueprint on low-income housing tax credit (LIHTC) equity pricing. Depending on how tax reform is written and if it were to be enacted, the amount of LIHTC equity raised annually could be reduced by as much as 17 percent or more, a loss of as much as $2.2 billion and 16,000 affordable homes per year or more. Given
If passed, the Affordable Housing Credit Improvement Act of 2017 would benefit the low-income housing tax credit (LIHTC) in many different ways.
The prospect of comprehensive tax reform poses a number of questions for the historic preservation community, including how a reduction in corporate tax rates would affect the value of historic tax credits (HTCs).
It’s no surprise to anyone who’s purchased a used car or whose favorite baseball team signed an aging free agent: Expenses are higher for older models.
In terms of predictability, few things were more stable from 2010 through 2014 than the annual increase in operating expenses for low-income housing tax credit (LIHTC) properties measured for the just-released Novogradac 2017 Multifamily Rental Housing Operating Expense Report. Each year saw an increase of between 2.41 percent and 3.06 percent.
Then 2015 happened.
A recent analysis of academic research contains valuable observations for housing practitioners. In “The What, Where, and When of Place-Based Housing Policy’s Neighborhood Effects,” Keri-Nicole Dillman, Keren Mertens Horn and Ann Verrilli reviewed 16 studies examining low-income housing tax credit (LIHTC) properties’ impacts on property values, neighborhood demographics, crime and education.
The Trump administration today released its budget request blueprint for fiscal year (FY) 2018. It requests $1.1 trillion in discretionary spending. As had been widely reported in the press, the proposal includes a $54 billion increase in defense spending, coupled with an equal amount of cuts to non-defense spending.
A few years ago Sen. Chuck Grassley, R-Iowa, commissioned the U.S. Government Accountability Office (GAO) to evaluate the low-income housing tax credit (LIHTC). The GAO broke up the task into four separate reports.
In the debate over corporate tax reform, lawmakers continue to look for a way to lower the top tax rate below its current 35 percent rate. When former House Ways and Means Committee Chairman David Camp, R-Mich., was drafting his tax reform bill in 2013, Novogradac & Company looked at what effect the repeal of the low-income housing tax credit (LIHTC) would have on the top corporate tax rate.
In January, the Congressional Budget Office (CBO) updated its 10-year economic projections. The update includes the 2017 consumer price index (CPI) estimate that the U.S. Department of Housing and Urban Development (HUD) will use for calculating the 2017 income limits for affordable rental housing properties that involve HUD and low-income housing tax credit financing.
A Jan. 23 New York Times article entitled, “Peak Millennial? Cities Can’t Assume a Continued Boost from the Young,” noted that the cresting wave of Millennial migration to center cities that had fuelled a rental boom in many American downtowns. Regardless of whether this trend is due to rising incomes, younger households getting priced out of central neighborhoods, or the outmigration of young families, the trend will shape the future of center cities.
As Congress considers comprehensive tax reform, all tax expenditures are the under the microscope and possibly at risk because they may be repealed in favor of lower tax rates. However, not all tax expenditures have the same impact on the federal budget. The low-income housing tax credit (LIHTC) doesn’t rank among the 25 most expensive tax expenditures for the federal government, according to the Joint Committee on Taxation’s latest tax expenditure estimates. Other key tax credit programs are nowhere close.
The nation’s population grew by 0.7 percent during the year that ended July 1, 2016 and that means the 2017 low-income housing tax credit (LIHTC) ceiling and tax-exempt private activity bond cap for many states will increase. The 0.7 percent growth follows two consecutive years of 0.8 percent growth.
As the new administration and Congress adjust to working together in Washington, the nation’s governors came together Jan. 25 to outline priorities for 2017 and emphasized a record of putting partisanship aside to make progress in their states.
Update: CTCAC revised its proposal Feb. 3 to focus on 2016 second-round awardees and then issued another revision Feb. 10. See bottom for details.
In previous posts we have examined the likely effects of corporate tax reform on the generally accepted accounting principles (GAAP) financial statements of corporate investors in low-income housing (LIHTC), and historic (HTC) tax credits. This post addresses the likely GAAP effects of lower corporate tax rates on new markets tax credit (NMTC) investments.
Last fall’s election outcome greatly increased the likelihood of changes in the Internal Revenue Code, including a reduction in corporate tax rates.
(Editor’s note – a condensed version of this discussion will appear in February issue of the Novogradac Journal of Tax Credits.)
The content highlights provisions unique to RCSs when prepared for an annual adjustment factor (AAF) rent determination (Section 9-2.C).
The U.S. Department of Housing and Urban Development (HUD) issued substantial revisions Dec. 1, 2016, to Chapter 9 of the Section 8 Renewal Policy Guide, which provides guidance to appraisers and reviewers for completing a rent comparability study (RCS).
A previous post discussed the likely effects of corporate tax reform on the generally accepted accounting principles (GAAP) financial statements of corporate investors in low-income housing tax credit (LIHTC) properties. This post addresses the likely GAAP effects of lower corporate tax rates on historic tax credit (HTC) investments.
As 2016 winds to an end, we are quickly approaching my favorite time of year – the day the U.S. Department of Housing and Urban Development (HUD) releases the new income limits. I am sure we all remember the year HUD affirmed its love back to us and released the limits on Valentine’s Day.
Around this time of year I start to get emails and phone calls wondering when the income limits will come out and if I have any inside information about potential increases. The following answers address a few of the most frequently asked questions.
President-elect Donald Trump campaigned on the promise of revitalizing the United States manufacturing industry, something that is viewed nationally as a point of pride and concern. Whether Trump will be successful is an open question, but the issue of manufacturing employment is likely to remain at the forefront of national and political discussions in upcoming legislative terms.
What’s not in question is that the significance of the U.S. role in global manufacturing is increasing in the 21st century: America is ascendant in manufacturing.
Given all the talk of tax reform in Washington, D.C., current low-income housing tax credit (LIHTC) investors want to know how tax reform, if passed, would affect their financial statements. Obviously, the ultimate impact of tax reform isn’t fully knowable or measurable until final details become available. How much will tax rates decrease? To what extent and how will Congress pay for tax rate reductions? What tax deductions, exemptions and/or credits will be added, modified or eliminated? The answers to these questions will eventually determine the actual effect for investors.
Reports indicate that President-elect Donald Trump and House Republicans plan to aggressively pursue tax reform in early 2017. It’s too soon to say what the tax reform might mean for specific tax provisions, such as the low-income housing tax credit (LIHTC), new markets tax credit (NMTC), historic preservation tax credit (HTC) and renewable energy tax credits.
President-Elect Donald Trump will nominate Dr. Ben Carson, his former rival for their party’s nomination, to be the next secretary of Housing and Urban Development (HUD).
As a retired pediatric neurosurgeon, Carson does not have professional experience in the programs HUD administers. Also, neither Trump nor Carson specifically addressed housing and community development policy during the primaries or general election.
Two unrelated announcements made this month could combine to assist developers with siting low-income housing tax credit (LIHTC) properties. First, the U.S. Departments of Housing and Urban Development (HUD) and Justice (DoJ) provided guidance on how the Fair Housing Act applies to zoning. Second, Trulia published research about the effect of affordable housing on surrounding property values.
When the CDFI Fund announced details of this week’s record $7 billion allocation of new markets tax credits (NMTCs) for 2015-2016, it continued a years-long trend of focusing a majority of the awards on operating businesses, rather than real estate activities.
On Nov. 8, Donald Trump was elected president, likely winning 306-232 in the projected Electoral College vote, according to the Associated Press (AP). Michigan and Arizona have yet to be called, but are likely to go for Trump, and New Hampshire is also uncalled, but is expected to go for Secretary Hillary Clinton. Clinton is ahead in the popular vote and appears likely to keep that lead when the votes are confirmed.
On Oct. 17, the U.S. Department of Housing and Urban Development (HUD) published a notice designating difficult development areas (DDAs) and qualified census tracts (QCTs) for 2017. Low-income housing tax credit (LIHTC) properties located in these areas are qualified to increase their eligible basis by 30 percent for new construction and rehabilitation costs (known as a boost).
On Oct. 20, Rep. Charles Boustany, R-La., spoke to attendees of the Novogradac 2016 New Markets Tax Credit Fall Conference in New Orleans, La. Among many other topics, he shared his perspective on questions that should be considered during the tax reform process as lawmakers consider which deductions and credits to revise or eliminate.
Thirty years ago Saturday–Oct. 22, 1986–President Ronald Reagan signed legislation authorizing the most sweeping tax reform in a generation. The Tax Reform Act of 1986 (TRA ’86) was a victory of bipartisanship, as it simplified the tax code, closed loopholes, eliminated many tax shelters, raised revenues and created one of Reagan’s lasting legacies.
TRA ’86 also included the low-income housing tax credit (LIHTC), arguably the most important affordable housing production tool in American history.
Rep. Charles Boustany, R-La., in September introduced a bill to provide sweeping relief for areas of Louisiana that were hit by catastrophic flooding a month earlier.
Here are the chief provisions of his bill that relate to the low-income housing tax credit (LIHTC) and new markets tax credit (NMTC) allocations.
The Internal Revenue Service (IRS) recently announced that $2.64 million of unused low-income housing tax credit (LIHTC) carryovers for calendar year 2016 was placed in the national pool and reallocated to 34 qualified states.
About the National Pool
While the multifamily bond market is broadly recovering, some states’ multifamily housing bond markets have bounced back more quickly than others according to Novogradac & Company analysis of Internal Revenue Service (IRS) data. Novogradac also found less volatility in multifamily bond issuance. These two findings are useful for national investors as they plan investment strategies.
Because a number of states regularly fail to use and then subsequently abandon some of their private activity bond (PAB) volume cap, some members of the U.S. Congress are reportedly continuing to consider a variation on the administration’s fiscal year (FY) 2017 proposal to allow as much as 18 percent of a state’s unused PAB cap to be used instead for 9 percent low-income housing tax credit (LIHTC) allocations.
The Council of Development Finance Agencies (CDFA) bond data from 2000-2015 and the recent trends in PAB markets provides useful insight into bond issuance and use trends.
President Barack Obama and the Federal Emergency Management Agency (FEMA) declared parts of Florida, North Carolina and Georgia, and South Carolina as major disaster areas related to Hurricane Matthew, which killed at least 36 people and caused billions of dollars in damage for its five-day pounding of the Southeast United States.
Not all states issue multifamily private activity bonds (PABs) each year, and the number of states issuing no multifamily PABs has varied widely since 2000, according to data reported by the Council of Development Finance Agencies (CDFA). The lowest number of states issuing no multifamily PABs was 2003, with only nine states not issuing multifamily PABs. With the onset of the financial crisis, the number grew to 32 in 2011. As the nation recovered, the number of states issuing no multifamily PABs fell to 13 in 2015.
Multifamily bond issuance grew fairly steadily between 2000 and 2007, with roughly $3 billion in bonds issued in 2000 and approximately $6.25 billion issued in 2007, according to data reported by the Council of Development Finance Agencies (CDFA). However, in 2008 multifamily bond issuance dropped by $4.6 billion, or 78 percent. The financial crisis made investors and lenders significantly more risk averse, reducing their demand for a variety of bond instruments. Furthermore, interest rates for taxable debt was so low that they were often more appealing than debt from multifamily bonds.
Through October 2015, 185 Rental Assistance Demonstration (RAD) projects completed the funding process representing $2.5 billion in financing to convert 19,255 units from public housing to Section 8 contracts. As only $250 million in financing is from public housing funds, the leverage ratio of RAD projects is nearly 9:1. Most of those developments (63 percent) are being rehabilitated and others are being demolished and rebuilt, according to a recently issued interim report evaluating the U.S.
The U.S. Treasury’s September 22 announcement of $91.5 million in Capital Magnet Fund (CMF) awards to 32 organizations was a milestone: the first such announcement since the program’s funding was suspended after just one round of allocations. What’s more, based on Novogradac & Company’s projections, even more funding will be available under this program next year.
About the Awards
Last month, Fivethirtyeight published analysis that shows a clear relationship between the commute time and rent level that aligns closely with what Novogradac & Company has found when evaluating locations for low-income housing tax credit (LIHTC) properties.
In 2015, 13 states didn’t allocate any private activity tax-exempt bond (PAB) cap to affordable rental housing, according to the Council of Development Finance Agencies (CDFA). Meanwhile, also in 2015 $65 billion in available PAB cap went unused, $54.5 billion of which was carried forward to 2016. And from about 30 states according to the CDFA, an aggregate $10.5 billion could not be carried forward and was abandoned last year. A rough estimate indicates this lost resource just in one year could have made possible 80,000 more affordable apartments.
The U.S. Department of Housing and Urban Development (HUD) issued final fair market rents (FMRs) for HUD fiscal year (FY) 2017, which will be effective on October 1, 2016. FMRs in FY 2017 increased for the majority of the country. FY 2017 FMRs are higher than FY 2016 FMRs for approximately 77 percent of counties and lower for approximately 23 percent of counties. The average change in FMR is an increase of approximately 3 percent. The average dollar amount increase is $25.57.
California Tax Credit Allocation Committee (TCAC) and California Debt Limit Allocation Committee (CDLAC) Executive Directors Mark Stivers and Jeree Glasser-Hedrick issued an important joint memo dated August 15 proposing eight policies addressing the cost of low-income housing tax credit (LIHTC) developments.
In an opinion dated August 26, the U.S. District Court for the Northern District of Texas dismissed a disparate impact claim by The Inclusive Communities Project (ICP) against the Texas Department of Housing and Community Affairs (TDHCA). The case has been of great interest in the low-income housing tax credit (LIHTC) community.
Total operating expenses were lower for senior-focused low-income housing tax credit (LIHTC) properties than for family-focused properties in each of the five years Novogradac & Company examined as part of the newly-released 2016 Multifamily Rental Housing Operating Expense Report. Not only were expenses higher for family-focused properties, the difference grew from $148 per unit (3.7 percent) in 2010 to $365 per unit (8.4 percent) in 2014.
While the process is all new and possibly a bit daunting, there is a resource government entities should use when developing their plans to affirmatively further fair housing (AFFH). The Department of Housing and Urban Development (HUD) has issued specific guidance on how it will review government entities’ AFFH plans.
After declining for four consecutive years, from 2010 through 2013, the ratio of a low-income housing tax credit (LIHTC) property’s total expenses to its total median rental income, known as net operating income, or NOI, finally had a winning year in 2014, based on five years of Novogradac & Company’s operating expense data.
In 2015, the 50 states and the District of Columbia reported issuing $6.6 billion in multifamily housing bonds, representing at least a 1.5 percent increase over the $6.5 billion reported issued in 2014, according to the Council of Development Finance Agencies (CDFA).
The Internal Revenue Service (IRS) today published highly anticipated temporary regulations that provide guidance regarding the income inclusion rules under section 50(d) of the Internal Revenue Code (IRC). This guidance has been eagerly awaited by the tax credit community, particularly historic tax credit (HTC) and renewable energy tax credit (RETC) stakeholders, because it has implications for the pass-through of tax credits to a master tenant.
As noted in June’s Washington Wire, Sen. Maria Cantwell, D-Wash., introduced legislation that would, among many other things, expand the low-income housing tax credit (LIHTC) by 50 percent to address the tremendous need for affordable rental housing across the country. More than a quarter of all U.S.
Today Sens. Maria Cantwell, D-Wash.; Orrin Hatch, R-Utah; and Ron Wyden, D-Ore., introduced the Affordable Housing Credit Improvement Act of 2016, containing improvements to the low-income housing tax credit (LIHTC) in addition to a 50 percent expansion. This second, more comprehensive bill follows S. 2962, a LIHTC bill Cantwell and Hatch introduced in May.
The Obama administration’s fiscal year (FY) 2017 budget proposal is similar to its multiple predecessors in that it again seeks to allow states to convert a percentage of their private activity bond (PAB) volume cap into 9 percent low-income housing tax credit (LIHTC) allocations. But unlike previous years, this year’s proposal is gaining some traction.
In 2015, Federal Home Loan Banks (FHLBanks) awarded $210 million to 379 rental housing developments through the Affordable Housing Program (AHP), according to the Federal Housing Finance Agency’s (FHFA’s) 2015 Report to Congress. Those properties comprised 20,581 rental homes, of which more than 70 percent (14,709) were affordable to households with very-low incomes (at or below 50 percent of the area median income).
Despite its headline, the second of three planned reports about the low income housing tax credit (LIHTC) released last week by the Government Accountability Office (GAO) found the program was largely being administered appropriately at the state level and–in some cases– LIHTC allocators exceed requirements.
Controlling development costs can and should be balanced with the goals of building quality affordable rental housing and meeting fair housing requirements, reports Enterprise Community Partners. “Giving Due Credit: Balancing Priorities in State Low-Income Housing Tax Credit Allocation Policies,” a report issued today, discusses the ever-hot topic of development costs.
A number of regulation and guidance projects are making their way towards publication that will significantly impact the historic tax credit (HTC), new markets tax credit (NMTC) and low-income housing tax credit (LIHTC), according to remarks made May 25, 2016, at the ABA Forum on Affordable Housing and Community Development by representatives from the Internal Revenue Service, Community Development Financial Institutions (CDFI) Fund and Treasury Department.
In addition to increasing the amount of low-income housing tax credits (LIHTCs), the Affordable Housing Credit Improvement Act of 2016 (S. 2962) proposes a significant change to a fundamental aspect of Internal Revenue Code Section 42. The idea, if enacted, would allow LIHTC properties to better meet the need for affordable rental housing.
Novogradac & Company estimates that the low-income housing tax credit (LIHTC) 50 percent authority increase provision in the Affordable Housing Credit Improvement Act will fund between 200,000 and 225,000 additional LIHTC units from 2017 through 2026. Starting in 2022, the year after the 50 percent increase is fully phased in, annual units financed are 21,000 to 25,000, rising to 29,000 to 33,000 in 2026.
After being in the unusual situation of acting after the Senate Appropriations Committee, the House Appropriations Transportation-HUD (THUD) Subcommittee May 18 approved its $58.2 billion fiscal year (FY) 2017 THUD spending bill by voice vote. The bill provides $889 million more than FY 2016 but $4.9 billion less than the Obama administration’s FY 2017 request.
Last week Sen. Maria Cantwell, D-Wash., and Sen. Orrin Hatch, R-Utah, introduced legislation that, if enacted, would represent some of the most significant changes to the federal low-income housing tax credit (LIHTC) since its enactment. The proposal is a striking statement of bipartisan support for the LIHTC and promises to make considerable progress toward meeting the nation’s severe need for more affordable rental housing.
On May 4, the U.S. Department of Housing and Urban Development (HUD) announced $174 million for the inaugural round of Housing Trust Fund (HTF) allocations in 2016 and simultaneously announced allocations for each state and territory.
Sens. Tim Scott, R-S.C. and Cory Booker, D-N.J., and Reps. Pat Tiberi, R-Ohio, and Ron Kind, D-Wis., today introduced the Investing in Opportunity Act to help revitalize economically distressed communities. The bipartisan legislation would create a framework for encouraging the investment of private capital in economically distressed areas of the country. It’s estimated that more than 50 million Americans live in a distressed community.
Since December, members of the renewable energy community have been working to extend the renewable technologies that weren’t included in December’s legislation that extended the investment tax credit. The affected technologies include fuel cells, small wind projects and geothermal heat pumps, among other renewable resources.
The Internal Revenue Code (IRC) has few mandates for qualified allocation plans (QAPs). One of these covers the intense competition for low-income housing tax credits (LIHTCs).
The Senate Appropriations Committee on April 21 unanimously approved its $56.5 billion fiscal year (FY) 2017 Transportation-HUD (THUD) spending bill and accompanying committee report.
As noted here earlier this month, the Internal Revenue Service (IRS) released population figures for 2016. Those figures are an important component of how a state’s amount of available low-income housing tax credits (LIHTCs) is calculated. Other key factors are the per capita amount and small state minimums set each year, also by the IRS.
The U.S. Department of Housing and Urban Development (HUD) released income limits March 28 for fiscal year (FY) 2016, continuing its policy of releasing sets for both Section 8 and multifamily tax subsidy project (MTSP). The MTSP income limits determine maximum gross rent and tenant income qualification for developments funded with low-income housing tax credits (LIHTCs) and tax-exempt housing bonds.
Gross rent will increase for existing MTSPs in approximately 26 percent of counties; the balance will remain flat.
Highlights of the Changes
For the second consecutive year the nation’s total population grew by approximately 0.8 percent, according to Internal Revenue Service (IRS) Notice 2016-24, which lists the 2016 calendar year resident population figures. Six states (plus Puerto Rico, which lost more than 74,000 residents) had a net decrease in population from 2015 to 2016; the state seeing the largest population decline was Illinois, which lost 20,585 residents (.16 percent).
As predicted in this space last summer, effects of the Supreme Court’s ruling in Texas Department of Housing and Community Affairs v. Inclusive Communities Project Inc. (TDHCA and ICP, respectively) ripple through the affordable rental housing community.
On March 24, the congressional Joint Committee on Taxation (JCT) released its estimates of the cost of the administration’s fiscal year (FY) 2017 tax proposals. While of some of the JCT estimates of tax credit proposals largely match that of the U.S. Office of Management and Budget (OMB), there are a few notable differences.
During the first week of March, dozens of people in Dallas worked together toward a common goal: examining existing housing policy and practice and identifying a path forward for providing affordable rental homes and affirmatively furthering fair housing. And while some of the factors and questions considered were specific to Dallas, other local governments might also benefit from replicating the process and learning from the outcomes.
The federal low-income housing tax credit (LIHTC) became part of the federal tax code 30 years ago this fall, when President Ronald Reagan signed the Tax Reform Act of 1986. In the three decades since, millions of people have lived in homes provided by a program that also creates thousands of jobs and billions of dollars in income every year.
On March 17, the House of Representatives passed the Evidence-Based Policymaking Commission Act (H.R. 1831), following Senate passage by unanimous consent the previous day.
House Ways and Means Chairman Kevin Brady, R-Texas, praised the move, saying the measure would help Congress “better understand which federal programs help lift people out of poverty–and which ones continue to fail the American people.” He said, “With better data and information, we can hold programs accountable and support the programs that truly change lives.”
In 2014, 15 percent of Illinois’s 12.6 million residents lived in poverty, including 20 percent of children, ranking the state 25th in those measures nationally. The U.S. Census reported that in 2013 Illinois ranked 49th in unemployment rate. In 2014, 441,790 households in Illinois paid more than half their income on rent.
As previously noted in this space, the Housing Trust Fund (HTF)–created by the Housing and Economic Recovery Act of 2008–will be funded by contributions based on 4.2 basis points of Fannie Mae’s and Freddie Mac’s annual new business purchases. The U. S. Department of Housing and Urban Development (HUD) plans to distribute HTF allocations to states by summer 2016.
In 2014, 16 percent of Ohio’s 11.2 million residents lived in poverty, including 22 percent of children, ranking the state 31st and 32nd in those measures nationally. The U.S. Census reported that in 2012 Ohio ranked 8th in the number of housing units in the state that were affordable and available to households with very low incomes. Despite this, more than 391,790 households in Ohio pay more than half their income on rent.
In 2014, 17 percent of Florida’s 19.1 million residents lived in poverty, including 24 percent of children, ranking the state 36th and 37th in those measures nationally. The U.S. Census reported that in 2012 Florida ranked 50th in the number of housing units in the state that were affordable and available to households with very low incomes. More than 768,640 households in Florida pay more than half their income on rent.
In 2014, 21.5 percent of Mississippi’s 2.9 million residents lived in poverty, including 29 percent of children, ranking the state last and second-to-last nationally. Additionally, in terms of economic security, Mississippi ranked last nationally in the percentage of households who were food insecure and 49th nationally in terms of unemployment rate. More than 92,000 households in Mississippi pay more than half their income on rent.
While hot housing markets can be indicative of healthy economies, they sometimes also pose challenges for low- and moderate-income renters looking for affordable housing. In Hawaii, however, the economic picture and housing conditions for Hawaiians are both positive. In 2014, 11 percent of Hawaii’s 1.4 million residents lived in poverty, including nearly 13 percent of children, giving the state the 5th and 4th lowest rates in these respective categories nationally. Nearly 54,000 households in Hawaii pay more than half their income on rent.
Last summer the U.S. Department of Housing and Urban Development (HUD) issued its final rule on affirmatively furthering fair housing (AFFH).
AFFH requirements apply to HUD funding recipients and have been the law for four decades. Essentially, program participants agree to use their resources to advance desegregation, expand choice based on protected class status, and otherwise promote the goals of fair housing.
In 2014, 20 percent of Louisiana’s 4.7 million residents lived in poverty, including nearly 28 percent of children, ranking the state 48th nationally. In 2005, Hurricane Katrina damaged more than a million residences in the Gulf Coast region; about half of these damaged units were located in Louisiana. In New Orleans alone, 134,000 housing units — 70 percent of all occupied units — suffered damage from Hurricane Katrina and the subsequent flooding. To encourage rebuilding and recovery, Congress passed and President Bush signed H.R. 4440, the Gulf Opportunities Zone (GO Zone) Act of 2005.
Sens. Ben Cardin, D-Md., and Susan Collins, R-Maine, are expected to introduce today the Historic Tax Credit Improvement Act of 2015. The legislation is very similar to H.R. 3846, introduced Oct. 28 in the House but not identical.
The legislation would expand and improve the historic tax credit (HTC) by:
Median income fell in three-fourths of Michigan cities over the past five years, according to the U.S. Census Bureau, which also reported that in 2014, 16.2 percent of Michigan’s 9.9 million residents lived in poverty. More than 314,000 households in the state pay more than half their income on rent.
In 2014, 13 percent of Colorado’s more than 5 million residents lived in poverty, including more than 17 percent of children. And while those levels are both about 2 percentage points lower than the national average, nearly 185,000 households in Colorado pay more than half their income on rent.
In 2014, 19 percent of Georgia’s nearly 10 million residents lived in poverty, including more than 26 percent of children, ranking the state 47th and 42nd in the country. More than 360,000 households in Georgia pay more than half their income on rent.
While six Fortune 500 companies are based in Arkansas, including Walmart, the three-year median household income from 2009-11 was $39,806, ranking the state 49th in the nation. In 2014, 19 percent of Arkansas nearly 5 million residents lived in poverty, including more than 300,000 children.
In 2014, 18 percent of Texas’s nearly 27 million residents lived in poverty, including about 25 percent of children. Those levels put Texas 38th nationally. Also in 2014, Texas ranked 50th for health insurance coverage and 49th in food insecurity. Approximately one quarter of all African Americans (24.9 percent), Asian Americans (25.9 percent) and Latinos (26.2) in Texas live in poverty. More than 800,000 households in Texas pay more than half their income on rent.
In 2014, 19 percent of Alabama’s nearly 5 million residents lived in poverty, including more than 300,000 children. While the housing downturn in 2008 took longer to hit Alabama than some other states, recovery has similarly been slow to come, with tax revenues still lagging nearly 9 percent off the pre-2008 levels. Housing units in multi-unit structures comprise more of the total housing stock in Alabama (26 percent) than in the country as a whole (16 percent).
As predicted in this space three and a half years ago, the Internal Revenue Service (IRS) audited more partnerships over the past few years. While the overall audit rate of partnerships is low (generally between a third and a half a percent), both the audit rate and the number of audits is up recently.
As described in this space earlier this month, the Obama administration’s budget request for fiscal year (FY) 2017 signaled continued strong support of the low-income housing tax credit (LIHTC), in the form of provisions estimated to cost of nearly $10 billion over 10 years.
At first glance, Nevada might seem like a community development and historic preservation desert. As of 2013 there were four historic tax credit (HTC) or new market tax credit (NMTC) developments completed in the state. But these figures are misleading and understate the true impact of tax credit investment. Those four projects generated nearly 700 jobs and nearly $50 million in economic activity.
South Carolina’s economy has struggled in recent years as illustrated by the fact that nearly 14 percent of individuals in South Carolina had their income fall below the poverty level at some time during 2013, compared to 11 and a half percent for the country overall. Of all households in South Carolina, 32 percent are renters; of those, 24 percent, or nearly 136,000 individuals, are extremely low income.
Thirty years ago this fall–Oct. 22, 1986–President Ronald Reagan signed the Tax Reform Act of 1986, which included the federal low-income housing tax credit (LIHTC). That program became what the National Association of Home Builders calls, “the most successful affordable rental housing production program in our history.”
The low-income housing tax credit (LIHTC), America’s most successful affordable housing production program, is responsible for a vast majority of affordable rental housing built in the past 30 years. Novogradac’s Low-Income Housing Tax Credit Showcase, a 166-page report that highlights the success of the program since its creation in 1986, highlights that residents benefit the most from the program.
On Dec. 10, 2015, the Federal Housing Finance Agency (FHFA) proposed a rule outlining the obligation that Fannie Mae and Freddie Mac serve three traditionally underserved markets: affordable rental housing preservation, rural housing and manufactured housing. Collectively, this obligation is known as the “Duty to Serve.” FHFA established the Duty to Serve regulation after a Congressional directive in the Housing and Economic Recovery Act of 2008.
The Obama administration released its $4.2 trillion fiscal year (FY) 2017 budget request Feb. 9, the last budget submission of Obama’s presidency.
New Hampshire lost 35,000 jobs during the Great Recession and in April 2014 still had 1.5 percent fewer jobs than it did in December 2007, according to research conducted by the New Hampshire Housing Finance Authority (NHHFA). Two-thirds of the jobs created post-recession pay below average wages.
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For the renewable energy tax credit community, 2015 was a landmark year. While there was plenty of guidance, reports and legislation, the year ended with multi-year, phase-down extensions of both the investment tax credit (ITC) and production tax credit (PTC)–giving the renewable energy industry some long-term stability that’s been lacking for the past several years. That these multi-year, phase-down extensions came despite some stiff opposition, including serious suggestions to provide no further extensions, makes that much more noteworthy.
In 2014, approximately 41 percent of Iowa’s 3 million residents lived in non-metropolitan areas. Iowa has been largely shielded from unemployment concerns; the unemployment rate in 2013 was 3.3 percent. Median household income in 2013 across the state was roughly $52,000, with nearly 13 percent of individuals and 8 percent of families living below the poverty level. More than 83,000 households in Iowa pay more than half of their income on rent.
The Iowa caucus on Feb. 1 kicks off the presidential primary season and will be followed quickly by electoral events in 30 states before March 15.
New Hampshire’s primary will be Feb. 9, followed by South Carolina’s and Nevada’s later in February.
Then on March 1, Super Tuesday will feature important events in 12 states:
Bigger may be better when it comes to investing in distressed communities, according to research released Dec. 22, 2015 entitled “What Matters More for Economic Development, the Amount of Funding or the Number of Projects Funded? Evidence from the Community Development Financial Investment Fund.” The report’s authors answered the title question definitively as it relates to the New Markets Tax Credit (NMTC) program, based on data from California.
Today the United States recognizes the legacy of Dr. Martin Luther King, Jr. Some housing and community development professionals may not know the extent to which his work continues to influence ours.
For the new markets tax credit (NMTC) world, 2015 was a landmark year–one bookended by the beginning of the year with a budget proposal and legislation introduced to make the NMTC program permanent and at the end of the year with the five-year extension of the program. Along the way, there were some important reports issued, as well as significant changes at the Community Development Financial Institutions (CDFI) Fund and a landmark anniversary.
Here are some of the major developments for the NMTC community, in chronological order:
The fifth biennial rental housing report from Harvard University’s Joint Center on Housing Studies (JCHS), “America’s Rental Housing: Expanding Options for Diverse and Growing Demand,” released Dec. 9, 2015 finds a record 42.6 million households living in rental housing. This is an increase of 9 million households since 2005.
As we start a new year, it’s a good time to consider the one we’ve just left. This allows us a chance not only to reflect on successes and challenges, but also to consider what those milestones mean for the months ahead.
From key U.S. Department of Housing and Urban Development (HUD) and Internal Revenue Service (IRS) guidance to tax extender legislation, here are significant developments in the affordable rental housing world in 2015, listed chronologically:
Measurable items are important in the tax credit community–from impact of qualified equity investments (QEI) in new markets tax credit (NMTC) properties to income levels for residents of low-income housing tax credit (LIHTC) developments and output of renewable energy investment tax credit (ITC) projects. With that in mind, it seems appropriate to end 2015 by taking a quick look back at the most-viewed items from Novogradac & Company LLP, whether on this blog, our monthly magazine, weekly podcast or YouTube channel.
On Dec. 15, House and Senate leadership announced a $650 billion extenders bill that extends or makes permanent several temporary tax provisions, including several of note for the affordable housing, community development and renewable energy communities.
On Dec. 16, the House and Senate Appropriations Committee leadership released the fiscal year (FY) 2016 omnibus appropriations bill. The bill includes $1.149 trillion in discretionary spending for FY 2016, which was made possible by the Bipartisan Budget Act of 2015, which increased the discretionary spending caps for FY 2016.
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:
A recent post described an opportunity to preserve the 30 percent low-income housing tax credit (LIHTC) boost for properties being planned in expiring difficult development areas (DDAs) and qualified census tracts (QCTs).
The Housing Trust Fund (HTF)–created by the Housing and Economic Recovery Act of 2008–will be funded by contributions based on 4.2 basis points of Fannie Mae’s and Freddie Mac’s annual new business purchases. The 2015 allocation will be transferred to the U. S. Department of Housing and Urban Development (HUD) within the first 60 days of 2016. HUD is expected to distribute HTF allocations to states in the first half of 2016.
As Congress continues to negotiate on a $500 billion to $800 billion extenders bill that would make some temporary tax provisions permanent, House Ways and Means Committee Chairman Kevin Brady, R-Texas, filed Dec. 7 a “fallback” two-year extenders bill–one year retroactive for 2015 and one year prospective through the end of 2016–that would extend more than 50 expiring provisions.
As noted last week, it’s been almost 15 years since President Bill Clinton signed the Community Renewal Tax Relief Act of 2000, which created the new markets tax credit (NMTC).
Last week’s post outlined the NMTC’s history. This week, Part 2 highlights key facts that illustrate the tax credit’s effectiveness and significance.
Nearly 15 years ago, on December 21, 2000, President Bill Clinton signed
into law the Community Renewal Tax Relief Act of 2000. Among other things, the bill created the new markets tax credit (NMTC), which was designed to
encourage investment in low-income communities with a credit equal to
39 percent of the investment, granted over seven years.
As noted in this brief history, more than 9,000 NMTC investments have been made and have generated more than 596,000 jobs so far.
The Senate is considering a revised fiscal year (FY) 2016 Transportation-HUD (THUD) spending bill. This revised bill was made possible by the passage of the Bipartisan Budget Act of 2015, which increased the discretionary spending caps for FY 2016 by $50 billion, equally divided between defense and nondefense spending.
With the Oct. 29 elevation of Rep. Paul Ryan, R-Wis., as speaker of the House, and the subsequent selection of Rep. Kevin Brady, R-Texas, as the new House Ways and Means Committee chairman Nov. 4, there was a vacancy that needed to be filled: the Health Subcommittee chairman, formerly held by Brady.
New research demonstrates that low-income housing tax credit (LIHTC) financed developments are an effective tool to help revitalize low-income communities, improving the welfare of both renters and homeowners, with aggregate benefits to society of $116 million or more per LIHTC development.
The Bipartisan Budget Act of 2015 signed Nov. 2 by President Barack Obama includes revenue generating provisions that are intended to streamline the Internal Revenue Service (IRS) partnership audit process by eliminating multi-tier audits and determinations at the partner level. Similar provisions were included in the president’s fiscal year (FY) 2016 budget and a bill introduced by Rep. Jim Renacci, R-Ohio.
When the Historic Tax Credit Improvement Act was introduced Wednesday, many may have assumed it was a repeat of the Creating American Prosperity through Preservation (CAPP) Act that was introduced in the last and earlier Congresses.
Affordable housing developers and public housing authorities have a brief window to preserve a significant potential benefit for low-income housing tax credit (LIHTC) developments in the pipeline, but interested parties must act now to secure a key designation that could disappear at the end of this calendar year.
Housing isn’t getting much attention in the 2016 presidential campaign. The issue wasn’t brought up in first two Republican debates in Cleveland and Simi Valley, Calif., nor in the first Democratic debate in Las Vegas.
The Internal Revenue Service (IRS) recently announced that $2.6 million of unused low-income housing tax credit (LIHTC) carryovers for calendar year 2015 were placed in the national pool and reallocated to qualified states.
California Gov. Jerry Brown on Saturday vetoed two bills to make the state low-income housing tax credit (LIHTC) more effective.
The first bill, A.B. 35, would have increased the $70 million annual state LIHTC allocation cap by $100 million for calendar years 2016 through 2021.
Last month, Enterprise Community Partners and the Harvard Joint Center for Housing Studies (JCHS) released Projecting Trends in Severely Cost-Burdened Renters: 2015-2025. The white paper examines how demographic and economic trends over the next decade are likely to affect the near-record number of renters with severe housing cost burdens – that is, paying more than half their income in rent.
As reported Monday on www.historictaxcredits.com, the National Park Service (NPS) and Rutgers University on Sept. 14 released the Annual Report on the Economic Impact of the Federal Historic Tax Credit for FY 2014.
By most accounts, the low-income housing tax credit (LIHTC) is a success, creating 2.8 million affordable rental homes since 1987, nearly 100,000 jobs annually and more $9 billion in economic income. It is the nation’s most important source of capital for affordable rental housing development, and virtually all affordable rental housing constructed or preserved annually since its creation depends upon the LIHTC.
In a victory for the affordable housing community, Fannie Mae and Freddie Mac will finance more multifamily units for low- and very-low-income families under goals in a final rule by the Federal Housing Finance Agency (FHFA) that will become official soon. It was published Sept. 3 in the Federal Register.
The tax credit communities face an air of uncertainty after the Government Accounting Standards Board (GASB) issued final guidance that requires more detailed disclosures on tax abatement programs. The programs affected could include both federal and state low-income housing tax credits (LIHTCs), new markets tax credits (NMTCs), historic tax credits (HTCs) and renewable energy tax credits (RETCs).
When Hurricane Katrina made landfall in southeastern Louisiana Aug. 29, 2005–a decade ago–it became the costliest natural disaster in United States history and killed more than 1,800 people. The hurricane–and inadequate preparations for it–did horrific damage to the entire region, but low-income communities suffered the worst, many of whom are still suffering today. However, amid the destruction, the storm spurred heroic rescue and recovery efforts. And it produced a game-changing use of tax credits to redevelop areas hit by natural disaster.
Fannie Mae’s and Freddie Mac’s Securities and Exchange Commission filings for the second quarter of 2015 were made public last week. They show that both single-family and multifamily volume has increased, which is good news for the Housing Trust Fund (HTF) and Capital Magnet Fund (CMF).
The Council of Development Finance Agencies (CDFA) has collected 2014 private activity bond volume cap data and analyzes that data in “CDFA Annual Volume Cap Report: An Analysis of 2014 Private Activity Bond & Volume Cap Trends.”
On July 23, Sen. Chuck Grassley, R-Iowa, released a report he commissioned from the U.S. Government Accountability Office (GAO) on the federal administration of the low-income housing tax credit (LIHTC) program. The report criticizes LIHTC oversight from the U.S.
On July 21, the Senate Finance Committee approved legislation that included a 2015 and 2016 extension of most tax provisions that expired at the end of 2014. It came on a strong bipartisan vote of 23-3, with only Sens. Michael Enzi, R-Wyo.; Pat Toomey, R-Pa.; and Dan Coats, R-Ind., opposed. Included in the bill are the following:
On July 16, three weeks after release of the U.S. Supreme Court’s decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, the U.S. Department of Housing and Urban Development (HUD) published its final rule on affirmatively furthering fair housing (AFFH).
Three recent events have brought new focus and attention to the location of affordable rental housing. The industry’s most watched development was the U.S. Supreme Court’s decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project Inc. The plaintiffs alleged the state’s qualified allocation plans’ (QAPs) distribution of low-income housing tax credits (LIHTCs) had a disparate impact on minorities in violation of the Fair Housing Act.
On June 24, Harvard University’s Joint Center for Housing Studies (JCHS) released State of the Nation’s Housing 2015, an annual, comprehensive report on housing market data and trends. The report describes a continuing modest housing market recovery, buoyed by improvements in the homeownership market and the strong performance of rental properties. And while the report did document a modest reduction of severely burdened renters, the number of moderately burdened renters grew by a larger amount.
On June 25, the Senate Appropriations Committee approved its $55.7 billion fiscal year (FY) 2016 Transportation-HUD (THUD) spending bill and committee report, on a vote of 20-10, with all Committee Republicans and four Democrats—Sens. Mikulski, D-Md.; Feinstein, D-Calif.; Baldwin, D-Wis.; and Schatz, D-Hawaii.
On June 25, the U.S. Supreme Court released its long-awaited decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project Inc. (TDHCA and ICP, respectively). By a 5-4 vote the court held that the Fair Housing Act (FHA) allows for disparate impact claims, meaning proof of intent is not required to find discrimination in violation of this federal law.
Operating businesses continue to outpace real estate projects as likely beneficiaries of new markets tax credit (NMTC) financing. The last two NMTC allocation rounds have seen awardees expecting to use about $3 of NMTC awards for an operating business for every $1 dollar for real estate activities.
The Federal Emergency Management Agency (FEMA) last week declared a major disaster for Cooke, Gaines, Grimes, Harris, Hays, Navarro and Van Zandt counties in Texas related to recent severe storms, straight-line winds, tornadoes and flooding. On May 26, FEMA also declared a major disaster for Cleveland, Grady and Oklahoma counties in Oklahoma, also related to recent severe storms, tornadoes, straight-line winds and flooding.
Low-income housing tax credit (LIHTC) properties with a greater number of units have lower median per unit operating expenses than LIHTC properties with fewer units, according to the 2015 Novogradac Multifamily Rental Housing Operating Expense Report. Many industry participants are aware of the relationship between operating expenses and an LIHTC property’s number of units. For example, the report released by the U.S.
The Office of the Chief Counsel of the Internal Revenue Service (IRS) recently issued a memorandum dated March 26, 2015, recommending withdrawal of a SBSE memorandum dated August 20, 2007 regarding noncompliance resulting from conflicting program requirements.
The House Transportation-HUD (THUD) Appropriations Subcommittee approved its$55.3 billion fiscal year 2016 appropriations bill April 29. The amount is about $1.5 billion more than the FY 2015 enacted level, but $9.7 billion less than the FY 2016 request. The Obama administration’s request depended on Congress authorizing spending more than the budget caps set in the Budget Control Act of 2011.
The Federal Reserve’s Open Market Committee is providing subtle indications that interest rates will increase in the near future, which has led many to ask what effect these rising rates will have on low-income housing tax credit (LIHTC) percentages or rates. Particularly, many wonder how much higher must interest rates rise for the floating 70 percent present value (PV) credit to once again reach 9 percent?
In Notice 2015-23, the Internal Revenue Service (IRS) released the 2015 calendar year resident population figures, which show that the nation’s total population grew by approximately 0.8 percent. This growth in population translates into higher LIHTC and bond volume authority for 2015.
An oft repeated (Eriksen & Rosenthal 2010; Burge 2011) critique of supply-side affordable rental housing programs is that they do not increase the total supply of available rental housing. The research in this area does not suggest that supply side affordable housing displaces other affordable housing development, or challenge the efficacy of these programs in adding to the overall supply of affordable housing.
In a report released earlier this week, “Worst Case Housing Needs: 2015 Report to Congress”, the U.S. Department of Housing and Urban Development (HUD) found that 7.7 million very low-income unassisted households experienced worst-case housing needs in 2013, meaning they paid more than 50 percent of their monthly income for rent, lived in severely inadequate housing or both.
On Jan. 30, HUD released the interim regulations for the Housing Trust Fund (HTF), which was created by the Housing and Economic Recovery Act of 2008 (HERA) to support the production of affordable housing for very low-income families.
On Feb. 2, the Obama administration released its $4 trillion fiscal year (FY) 2016 budget request. The budget requests $1.09 trillion in FY 2016 discretionary spending, $74 billion more than the levels in the Bipartisan Budget Act of 2013. This $74 billion increase, split $38 billion more for defense and $37 billion non-defense spending, would be fully offset by revenue raising and mandatory spending reforms to remain within the budget caps.
Senate Finance Committee Chairman Orrin Hatch, R-Utah, and Ranking Member Ron Wyden, D-Ore., started tax reform deliberation in the 114th Congress on Jan. 15 by announcing five tax reform working groups to examine different components of the tax code and produce a report by May on the topic.
The U.S. Department of Housing and Urban Development (HUD) recently released a report, “Understanding Whom the LIHTC Program Serves: Tenants in LIHTC Units as of December 31, 2012”, about low-income housing tax credit (LIHTC) tenant demographics. As explained below, the HUD data set is incomplete. Missing data aside, the report contains many interesting statistics on LIHTC tenant demographics.
The affordable housing community lost a giant when David Reznick died at his home in Washington, D.C., on New Year’s Eve. He was 77.
David was the co-founder and chairman of the board of the Reznick Group and a pioneer in the affordable housing industry. He co-founded Reznick, Fedder & Silverman in 1977 and saw it grow into a top-20 accounting firm before merging with J.H. Cohn in 2012 to form New York-based CohnReznick LLP.
As the 113th Congress approached its end, the outgoing House Ways & Means Committee Chairman Dave Camp, R-Mich., officially introduced his tax reform bill as H.R. 1, The Tax Reform Act of 2014 on Dec. 11. There were no changes from his discussion draft, which was released Feb.
The House and Senate Appropriations Committee leadership released the fiscal year (FY) 2015 Continuing Resolution (CR) – Omnibus Appropriations bill (“CR-Omnibus”) on Dec. 9. The bill includes $1.013 trillion in discretionary spending for FY 2015, coming under the budget caps as passed by the Ryan-Murray Bipartisan Budget Act of 2103.
In post-election news conferences, President Barack Obama, presumptive Senate Majority Leader Mitch McConnell, R-Ky., and House Speaker John Boehner, R-Ohio, all mentioned tax reform as a potential bipartisan policy priority for 2015.
But in more recent public events involving three influential lawmakers—McConnell, Obama and incoming House Ways & Means Committee Chairman Paul Ryan, R-Wis.—the discussion of tax reform became more specific, focusing on business tax reform as opposed to comprehensive tax reform tacking both the individual and corporate sides of the tax code.
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.
House Budget Committee Chairman Rep. Paul Ryan, R-Wis., and Senate Budget Committee Chairwoman Sen. Patty Murray, D-Wash., recently introduced legislation to establish a new bipartisan commission could have a significant effect on the tax credit community–although many details are uncertain.
The Ryan- Murray legislation would create a 15-member panel to consider whether to and how to consolidate data about the effectiveness of federal spending programs and tax breaks.
At the Bipartisan Policy Commission (BPC) housing summit one of the proposals discussed was President Barack Obama’s proposal to allow the conversion of tax-exempt private activity bonds (PABs) into 9 percent low-income housing tax credits (LIHTCs).This conversation brought up important concerns about the current health of the PAB market a
Two major lawsuits involving Fannie Mae and Freddie Mac ruled on recently could affect the director of the Federal Housing Finance Agency (FHFA) Mel L. Watts’ decision to lift the suspension on government sponsored entities (GSEs) Fannie Mae and Freddie Mac contributions to the National Housing Trust Fund (NHTF) and Capital Magnet Fund (CMF).
The Joint Committee on Taxation recently released its annual report on tax expenditures that highlights once again how relatively inexpensive the low-income housing tax credit (LIHTC), historic tax credit (HTC), renewable energy production tax credit (PTC), renewable energy investment tax credit (ITC), and new markets tax credit (NMTC) are in in the context of other tax expenditures.
The new markets tax credit (NMTC) may have technically expired on Dec. 31, but that point hasn’t dampened interest in this important community development tool. Demand for the new markets tax credit program remains steady, as evidenced by today’s announcement from the CDFI Fund that it received 263 applications for the 2014 allocation round.
The Internal Revenue Service (IRS) recently announced that $2.6 million of unused low-income housing tax credit (LIHTC) carryovers for calendar year 2014 were placed in the national pool and reallocated to qualified states.
While the federal Low-Income Housing Tax Credit (LIHTC) program justifiably attracts more headlines than its state-level counterparts, a collection of state-level LIHTC programs are quietly making important contributions to the supply of affordable rental housing.
On July 23, a Bipartisan Policy Center (BPC) Housing Commission roundtable on affordable housing discussed a variety of proposals to expand the Low-Income Housing Tax Credit (LIHTC) program to address the significant need for affordable rental housing, and is set to continue discussing these issues, among others, at the BPC’s upcoming 2014 Housing Summit.
The National Council of State Housing Agencies (NCSHA) recently released its 2012 housing credit utilization data. Each year, NCSHA lists the annual amount of low-income housing tax credits (LIHTCs) allocated by each credit allocating agency and the total number of affordable rental housing units supported by LIHTC equity financing.
Sens. Charles Schumer, D-N.Y., Mark Pryor, D-Ark., and David Vitter, R-La., on July 22 introduced S. 2634, the National Disaster Tax Relief Act of 2014, which is an update to previously proposed S. 2233, also named the National Disaster Tax Relief Act. Much like its predecessor, the bundle of tax provisions in S.
Both the Bipartisan Policy Center (BPC) and President Barack Obama have made proposals that would increase low-income housing tax credit (LIHTC) funding. BPC’s Housing Commission advocates a 50 percent increase in LIHTC allocations. The president has proposed giving states the option of converting private activity bond cap into LIHTCs.
In a July 24 address to the American Enterprise Institute, House Budget Committee Chairman Paul Ryan, R-Wis., announced his new anti-poverty proposal, Expanding Opportunity in America, which builds upon a series of hearings the Budget Committee has held examining ideas to reform federal anti-poverty programs.
A recent paper, “An Analysis of the Costs, Benefits, and Implications of Different Approaches to Capturing the Value of Renewable Energy Tax Incentives,” by Mark Bolinger of Lawrence Berkeley National Laboratory argues that “tax equity is currently twice as expensive (on a comparable after-tax basis) as the project-level term debt that it likely supplants.” The paper then notes that “under a variety of plausible future scenarios examined in this report and relevant to utility-scale wind and solar projects, the benefit of mon
While much has been written about the economic and housing affordability benefits of the low-income housing tax credit (LIHTC), a recent paper, “Fighting Poverty, Mobilizing Voters: Housing Investment and Political Participation,” by Dr.
Rep. Kevin McCarthy, R-Calif., on June 19 was elected to replace Majority Leader Eric Cantor, R-Va., following Cantor’s recent primary loss.
As regular readers of this blog know, the Low-Income Housing Tax Credit (LIHTC) program is part of the federal tax code, but is administered at the state and local level by credit allocating agencies. Unfortunately, periodically researchers publish analyses that fail to incorporate the role and effect credit allocating agencies and other state and local policies have in directing LIHTC development outcomes.
Yesterday Reps. Pat Tiberi, R-Ohio, and Richard Neal, D-Mass., introduced H.R. 4717, a bill that would create a permanent floor for the low-income housing tax credit (LIHTC).The bill would establish a minimum 9 percent LIHTC rate for new rental construction property or substantial rehabilitation and a minimum 4 percent LIHTC rate for acquiring existing property (not financed by tax-exempt bonds).
On May 21, the House Appropriations Committee adopted amendments to the subcommittee-approved fiscal year (FY) 2015 House Transportation-HUD (THUD) appropriations bill. The amendments would increase funding for the U.S.
The House Transportation-HUD (THUD) Appropriations Subcommittee today approved its fiscal year (FY) 2015 bill. The bill includes $52.09 billion in discretionary spending – an increase of $1.2 billion above the FY 2014 enacted level but a decrease of $7.8 billion below President Obama’s FY 2015 budget request.
Last month, Mark Dellonte wrote about rental affordability on The Hill’s Congress Blog, warning about a looming low-income housing tax credit (LIHTC) “ledge,” a period when many LIHTC properties would leave their rent-restricted compliance periods. Dellonte observes that as many as one million LIHTC-financed apartment properties could leave the affordable housing stock between now and 2020.
Sens. Charles Schumer, D-N.Y., Robert Menendez, D-N.J., Michael Bennet, D-Colo., Mary Landrieu, D-La., Mark Udall, D-Colo., Kirsten Gillibrand, D-N.Y., Jay Rockefeller, D-W.Va., and Cory Booker, D-N.J., on April 9 introduced the National Disaster Tax Relief Act of 2014. The package of tax provisions aimed at providing relief to certain areas declared federal disaster areas in 2012 or 2013.
Fifty years ago, President Lyndon Baines Johnson enacted a series of policies that became known as the War on Poverty. Since then, the government has added a variety of policies to combat poverty, including tax provisions such as the Low-Income Housing Tax Credit (LIHTC) program and the New Markets Tax Credit (NMTC) program. A recent paper by Yale Tax Law Professor Susannah Tahk introduces the concept of the “tax war on poverty” and analyzes the growing number of tax code provisions to which the concept refers.
A recently released Joint Committee on Taxation (JCT) letter provides information related to certain changes contained in the tax reform discussion draft released by House Ways and Means Chairman David Camp that would eliminate tax-exempt private activity bonds, including qualified residential rental (QRR) bonds.
The Office of Management and Budget (OMB) released a report on the impact of mandatory across-the-board spending reductions known as sequestration created by the Budget Control of Act of 2011. The report details, among other things, the effect of sequestration on the Section 1603 cash grant program.
The release of the National Association of Home Builders’ (NAHB) 2014 Cost of Doing Business study provides an opportunity to re-examine how Low Income Housing Tax Credit (LIHTC) program developer profits compare to profits earned by market rate single family home builders.
As affordable housing developers know all too well, Congress has allowed a key provision of the American Taxpayer Relief Act, the 9 percent credit rate floor, to expire for low-income housing tax credit (LIHTCs) allocations received after Dec. 31, 2014. This means that the 70 percent present value tax credit rate has returned to being a completely floating rate, redetermined each month by Treasury.
A recently released Joint Committee on Taxation letter estimates that the certain changes contained in the tax reform discussion draft written by House Ways and Means Chairman David Camp would increase the number of rental units supported by the 9 percent low-income housing tax credit (LIHTC). However, while some changes would increase the number of units, numerous others would cost units.
Recently, House Budget Committee Chairman Paul Ryan, R-Wis., released a report “The War on Poverty: 50 Years Later,” evaluating America’s War on Poverty and the programs that fall under that umbrella. Unfortunately, the portion of the document that summarizes research on the low-income housing tax credit (LIHTC) can leave the reader with an inaccurate impression of some of the findings of previously published research on the program’s results.
In December, this blog discussed the 2012 National Park Service (NPS) report on the nationwide use of the historic preservation tax credit (HTC). The NPS has just released its 2013 edition, “Federal Tax Incentives for Rehabilitating Historic Buildings: Annual Report for Fiscal Year 2013,” and the data reveals the HTC continues to be an important economic development tool.
On March 4, the Obama Administration released its $3.9 trillion fiscal year (FY) 2015 budget request. The budget requests $1.07 trillion in FY 2015 discretionary spending, the $56 billion more than the level agreed to in the Bipartisan Budget Act of 2013. This $56 billion increase, split evenly between defense and non-defense spending, would be fully offset by revenue raising and mandatory spending reforms to remain within the budget caps.
Every year, Novogradac & Company surveys state housing and bond allocation agencies and collects information about each state’s low-income housing tax credit (LIHTC) allocation authority and application deadlines. Analysis of this data reveals, among other things, high demand for LIHTCs.
In Notice 2014-12, the Internal Revenue Service (IRS) released the 2014 calendar year resident population figures, which show that the nation’s total population grew by 1 percent.
Another Tax Court case involving Virginia state tax credits has held that state tax credits are property, and, under the facts of the case, the allocation of the credits to a partner was a disguised sale.
At this time last year, the comprehensive tax reform effort was gaining steam as Ways and Means Committee Chairman Dave Camp, R-Mich., and Ranking Member Sandy Levin, D-Mich., announced the formation of 11 separate Ways and Means Committee Tax Reform Working Groups and House Speaker John Boehner announced he would hold H.R. 1 for a comprehensive tax bill to signify the effort’s importance.
The Urban Land Institute recently released a report entitled “Bending the Cost Curve: Solutions to Expand the Supply of Affordable Rentals,” which discussed the continuing shortage of affordable housing and suggested potential improvements to the low-income housing tax credit (LIHTC) and tax-exempt bonds that could help alleviate the affordable housing crisis.
Recently, the Federal Accounting Standards Board (FASB) released Accounting Standards Update 2014-01, which revises and clarifies accounting guidance for investments in low-income housing tax credit (LIHTC) properties.
In this month’s Washington Wire, I review trends from the past 10 years’ federal budget proposals and speculate about what President Barack Obama’s proposal for fiscal year (FY) 2015 may include.
On Jan. 8, the Internal Revenue Service (IRS) issued a revised draft of Revenue Procedure 2014-12, which was drafted in response to the ruling in the case of Historic Boardwalk Hall LLC v. Commissioner, which is discussed in more detail here. There are three key changes in the revised Revenue Procedure 2014-12.
Late last month, Rep. Jim Costa, D-Calif., introduced H.R. 3809, which would allow certain census tracts for which information is not available to be treated as low-income communities for purposes of the new markets tax credit (NMTC). The bill would qualify for the NMTC program census tracts that are adjacent to two or more low-income communities and for which the Treasury Secretary does not have information indicating that the tracts are not low-income communities.
Below is the revised Revenue Procedure. More later on key changes.
IRS Revised Rev. Proc. 2014-12 Establishing Safe Harbor for Partnership Allocations of Rehabilitation Credits to Partners
Rev. Proc. 2014-12 will be published in Internal Revenue Bulletin 2014-3 on Jan. 13.
Administrative, Procedural, and Miscellaneous
26 CFR 601.105: Examination of returns and claims for refund, credit, or abatement; determination of correct tax liability
(Also: Part I, Sections 47 and 704; 1.46-3, 1.704-1.)
The U.S. Department of Housing and Urban Development (HUD) released income limits for fiscal year (FY) 2014. These income limits are used to determine income eligibility for HUD’s assisted housing programs, including public housing, Section 8, Section 202 and Section 811.
The National Renewable Energy Laboratory (NREL) recently released a report on the use of master limited partnerships (MLP) to raise equity for renewable energy that highlights many of the key issues the renewable energy community has been discussing in recent years. I discussed the report briefly in a recent podcast.
Recently, we addressed the impact that Sen. Max Baucus’ cost recovery draft proposalwould have on the ability of investors to raise equity from Low Income Housing Tax Credits (LIHTC) to build affordable rental housing for low-income families.
In our analysis, we also noted that the proposal would be retroactive, and would reduce annual depreciation expense for existing LIHTC properties. We also noted that we were preparing calculations on the impact.
Well, the results are in.
In late October, the Internal Revenue Service (IRS) released the annual update to its Tax Exempt Bond (TEB) Statistics. This rich dataset includes details about tax-exempt qualified residential rental bonds used to finance affordable rental housing. Digging into the data reveals a few interesting points.
Every year the National Park Service (NPS) releases reports on the nationwide use of the historic preservation tax credit (HTC). Here are three things the data reveals about the HTC that may surprise you:
Last week Senate Finance Committee Chairman Max Baucus, D-Mont., released the third in a series of tax reform proposals. The staff discussion draft focused on reforming cost recovery and tax accounting rules. The prospective adverse effects of these proposed changes on the Low-Income Housing Tax Credit (LIHTC) market is being discussed.
To mark the 27th anniversary of the Low Income Housing Tax Credit (LIHTC), the Bipartisan Policy Center (BPC) recently held an online Housing Expert Forum. The BPC posed two questions about the LIHTC: What lessons have we learned? What key components continue to make it a successful program?
Today, the Financial Accounting Standards Board’s Emerging Issues Task Force (EITF) approved generally accepted accounting principles (GAAP) amendments for low-income housing tax credit (LIHTC) investments.
The Financial Accounting Standards Board’s (FASB) Emerging Issues Task Force (EITF) will meet this Thursday and is scheduled to discuss how to account for investments in qualified affordable housing developments and, we hope, issue and approve revised accounting standards that could increase the investor pool for low-income housing tax credit (LIHTC) investments.
A couple weeks ago Congress launched a new round of budget talks, which reports suggest could have implications for comprehensive tax reform, and House Ways and Means Committee Chair Dave Camp, R-Mich., said that tax reform is on the table “this year, 2013.” One of the goals advocated by some tax reformers is to reduce the top corporate tax rate to less than 35 percent; to do this, Congress would have to reduce and/or eliminate certain tax expenditures.
In case you missed it, here are some highlights from the Novogradac New Markets Tax Credit Conference last month. Thanks go to our cohosts and sponsors, as well as the more than 600 community development professionals who gathered in New Orleans and made the conference a great opportunity to discuss a wide range of new markets tax credit topics and build new partnerships.
Two years ago, we looked at what effect the repeal of the low-income housing tax credit (LIHTC) would have on the top corporate tax rate. With the government shutdown over, lawmakers in Washington have returned to the negotiating table to discuss broader budgetary issues, including corporate tax reform. In order to reduce the corporate tax rate and remain revenue neutral, lawmakers would have to repeal certain tax expenditures, such as the LIHTC.
As I discuss in yesterday’s Tax Credit Tuesday podcast, a new law, once fully implemented, will allow the California Tax Credit Allocation Committee (CTCAC) to award state low-income housing tax credits (LIHTCs) to properties that serve special needs populations, even if such properties are also receiving additional federal LIHTCs by virtue of being located in
Interest in the new markets tax credit program remains steady, as evidenced by today’s announcement from the CDFI Fund that it received 310 applications for the 2013-2014 allocation round.
Here’s a look at how this round’s demand compares to the historical NMTC applications and allocations:
With the shutdown behind them, Congress is now expected to turn to other pending matters in the coming weeks, including as-yet-unscheduled Senate hearings to consider Janet Yellen’s nomination for Federal Reserve chair.
Appears that Majority Leader Reid will announce deal on floor of Senate shortly, once Minority Leader Connell makes it to the Senate floor.
Appears key points of deal are:
Today the Senate Banking Committee held a hearing on “Housing Finance Reform: Essential Elements of the Multifamily Housing Finance System” during which witnesses spoke in favor of secondary market support for multifamily housing, including affordable rental housing. In addition, many comments noted the strengths of the GSE’s multifamily programs and how well they have performed relative to the single-family side.
The Financial Accounting Standards Board’s Emerging Issues Task Force (EITF) at its meeting this morning deferred approval of revised standards that would allow investors to use a “proportional amortization” (as opposed to effective yield) method to recover the cost of their investments in LIHTCs “below the line.” These revised standards, if ultimately adopted, should expand the pool of potential LIHTC investors and is something that the industry has been working toward for years. Unfortunately the deferral of a decision today will keep some equity investors on the sidelines a few more mo
Recent reports indicate that when analyzing tax reform plans currently being created by House Ways and Means Committee Chair Dave Camp, R-Mich., and Senate Finance Chair Max Baucus, D-Mont., the Joint Committee on Taxation will use dynamic scoring as well as traditional, static scoring to consider the effects of various proposals. This technical detail could have significant implications for how certain tax credit provisions fare during the reform process.
The Treasury Department released an updated 2013-2014 Priority Guidance Plan, which contains 324 projects that are priorities for allocation of the resources of its offices during the plan year which runs from July 2013 through June 2014.
The Treasury Inspector General for Tax Administration (TIGTA) recently turned its eye to tax credit bonds and the tax credits that come with them. Congress has used tax credit bonds in the past few years to address the recession, renewable energy generation and disaster recovery efforts. Tax credit bonds include Clean Renewable Energy Bonds, New Clean Renewable Energy Bonds, Build America Bonds, Midwest Disaster Bonds and bonds issued under seven other programs.
On June 27, Senate Finance Committee Chairman Max Baucus, D-Mont., and Ranking Member Orrin Hatch, R-Utah, proposed a “blank-slate” approach as a legislative starting point for tax reform.
The low-income housing tax credit (LIHTC) has been hailed for its effectiveness in providing the highest quality of affordable rental housing.
The success of the LIHTC is not by chance, it is by design. The Novogradac special report, “Low Income Housing Tax Credit: Assessment of Program Performance & Comparison to Other Federal Affordable Rental Housing Subsidies,” discusses the seven features of the LIHTC program that contribute to its remarkable track record:
Section 404, page 13, of a bill recently introduced by Senators Cantwell and Barrasso (& co-sponsored by 9 others), S. 1352, would give significant competitive advantages to Indian tribes applying for low-income housing tax credits (LIHTCs) for affordable rental housing located in Indian areas.
Specifically, the Cantwell-Barrasso bill mandates that qualified allocation plans provide:
The Community Development Financial Institutions (CDFI) Fund today opened the 2013-2014 round of competition for the New Markets Tax Credit (NMTC) Program. The CDFI Fund says that it will make available up to $8.5 billion in tax credits. The application deadline for the 2013-2014 round is September 18.
On June 27, Senate Finance Committee Chairman Max Baucus, D-Mont., and Ranking Member Orrin Hatch, R-Utah, proposed a “blank-slate” approach as a legislative starting point for tax reform.
In “Will Tax Credit Increase Housing Supply? Experience from US and Prospect for Australia,” the United States’ low-income housing tax credit program (LIHTC) is analyzed, along with the national rental affordability scheme (NRAS) in Australia.
Harvard’s Joint Center for Housing Studies (JCHS) released its annual “The State of the Nation’s Housing” report on Wednesday. The good news is that JCHS found that the housing market is recovering and the nation added 258,000 new rental units, the most since 2004. The bad news is that that number barely puts a dent in the number of affordable rental units available for low-income families.
Last week’s announcement from Senate Finance Committee Chairman Max Baucus and Ranking Member Orrin Hatch proposing a “blank-slate” approach as a starting point for tax reform should serve as the firing of the figurative starting pistol for tax reform. Advocates for affordable housing, community development, historic preservation and renewable energy should pick up the pace and start even more aggressively advocating for the tax credit programs so crucial to their cause.
The New Jersey General Assembly and Senate have asked Congress to support the Hurricane Sandy Tax Relief Act. The Assembly on June 20 passed Assembly Concurrent Resolution No. 193, which expresses support for increased allocations of low-income housing tax credits (LIHTCs) and new markets tax credits (NMTCs) in areas affected by Hurricane Sandy.
Last week Sens. Ben Cardin, D-Md., and Susan Collins, R-Maine, introduced the bipartisan Creating American Prosperity Through Preservation Act, also known as the CAPP Act, which would improve and expand the historic tax credit.
The CAPP Act, S. 1141, has four primary provisions:
The Community Development Financial Institutions (CDFI) Fund this week opened the application period for the CDFI Bond Guarantee Program.
Revised eligibility criteria for the New Markets Tax Credit program will go into effect in less than a month, on July 1. The Community Development Financial Institutions (CDFI) Fund released the updated information in May 2012 and gave community development entities (CDEs) more than a year to adjust to the 2010 qualified communities.
The Congressional Budget Office (CBO) last week released a report, “The Distribution of Major Tax Expenditures in the Individual Income Tax System,” that examines how 10 of the largest tax expenditures in the individual income tax system in 2013 are distributed among households with different amounts of income. The report gained some attention because the 10 tax expenditures it considers are distributed unevenly across the income scale. But the real distributional impact of tax expenditures is not as simple as the report might suggest.
If current corporate tax reform proposals are successful, yields for low-income housing tax credit (LIHTC) investments could decrease significantly, according to the Novogradac & Company report, “Affordable Rental Housing After Tax Reform: Calculating Corporate Tax Reform’s Possible Effects on Equity Raised from Low-Income Housing Tax Credits.”
The Senate Finance Committee today released a tax reform option paper about economic and community development provisions.
Snapshot of Tax Reform’s Possible Effects on Affordable Rental Housing
Here are comments made to the Real Estate Working Group (pgs 538 & 539).
Low income housing tax credit (“LIHTC”) (sec. 42 and Sec. 142)
At our renewable energy tax credit conference yesterday, a question came up regarding the level of federal subsidies for renewable energy as compared to fossil fuels.
A study released by the Environmental Law Institute back in 2009 estimated that for the time period from 2002 to 2008 Fossil Fuels received more than two dollars in federal subsidies for every one dollar for renewable energy ($72.5 billion for fossil fuels and renewable energy received $29.0 billion).
On February 7, I posted a list of the largest tax expenditures to provide some context to show how the low-income housing tax credit (LIHTC), historic tax credit (HTC) and new markets tax credit (NMTC) stack up against the largest tax expenditures in terms of cost.
Last week the Ways and Means Committee Subcommittee on Social Security held the first in a series of hearings on the president’s and other bipartisan entitlement reform proposals. The hearing focused on using the chained Consumer Price Index (CPI) to determine the Social Security cost-of-living adjustment.
In the April 2013 Novogradac Journal of Tax Credits, I note that most parties involved in the tax reform discussion agree that tax expenditures should be evaluated before being limited, eliminated or otherwise changed. One recurring criterion that has emerged for evaluation is that of distributional impact, meaning who primarily benefits from an expenditure.
The following are major proposals included in the Obama administration’s fiscal year 2014 budget related to the low-income housing tax credit, new markets tax credit and renewable energy tax credits. In a separate post, I will weigh in on the tax reform proposals, and other provisions of interest.
The budget proposes several changes to the rules governing low-income housing tax credits (LIHTCs):
Here are a few highlights:
The organization reports that in 2011, the total amount of per capita credits utilized by state housing agencies was approximately $679 million.
The prospect of tax reform raises a myriad of questions. Even if the low-income housing tax credit (LIHTC) itself emerges from tax reform unchanged, other changes to the tax code would affect the LIHTC market. As such, it’s worth considering the possible ripple effects of various tax reform outcomes on LIHTC equity pricing, investor yields and the amount of equity raised.
Many financial institutions invest in low-income housing, new markets, historic and renewable energy tax credits, in part, to generate Community Reinvestment Act (CRA) investment test credit. However, this has led to differential pricing depending on whether an institution believes it will receive CRA consideration for its investment.
At a meeting today, the Financial Accounting Standards Board Emerging Issues Task Force considered how entities should account for limited partnership investments in low-income housing tax credit (LIHTC) projects. By a majority vote, the group agreed to expose for comment a change that would allow effective yield accounting for LIHTC investments when a guarantee is not provided when certain criteria are met.
As I write in this month’s Novogradac Journal of Tax Credits, a number of potential regulatory changes may have important consequences for the tax credit community.
The House Ways and Means Republicans reported yesterday that the push for comprehensive tax reform has received a significant boost. Specifically, it was confirmed today that House Speaker John Boehner is holding H.R. 1 for a comprehensive tax bill as a gesture meant to signify the importance tax reform holds for House Republicans.
Last week Ways and Means Chairman Dave Camp congratulated and welcomed Congressman Jim Renacci to the Ways and Means Committee. Rep. Renacci fills the vacancy left by Sen. Tim Scott who was named to the Ways and Means Committee in November but was subsequently appointed to the Senate in December. Rep. Renacci’s appointment represents the addition of a second Ohioan on the tax writing committee, joining Rep. Pat Tiberi who also hails from the Buckeye State.
(Ways and Means Release, February 13, 2013)
Camp and Levin Announce Ways and Means Tax Reform Working Groups
11 Working Groups Will Report Findings Back to Full Committee
By Ethan Handelman, Peter Lawrence, and Michael J. Novogradac
We have a nationwide affordable housing crisis that is growing despite the housing crash. Over 10 million working families pay more than 50 percent of their income for housing—that’s nearly one in four working households.
House Ways and Means Committee Chairman Dave Camp will hold a hearing next week to examine the itemized deduction for charitable contributions as part of his committee’s work on comprehensive tax reform.
Yesterday President Barack Obama signed into law H.R. 152, the Disaster Relief Appropriations Act of 2013. The bill provides approximately $50 billion for recovery and rebuilding in areas affected by Hurricane Sandy, including $16 billion in disaster Community Development Block Grants (CDBG) for states impacted by disasters in 2011, 2012 and 2013. In light of the difficult – and three-month long – path this bill took to pass, it seems unlikely that additional relief, such as a tax bill, is in the cards.
Despite adjourning the 112th session of Congress without passing tax relief legislation for those affected by Superstorm Sandy, pressure has remained steady on lawmakers to act.
As mentioned in an earlier post, earlier this month in H.R. 8, the American Taxpayer Relief Act of 2012, Congress approved an extension of the 9 percent low-income housing tax credit (LIHTC) floor. While this extension is positive news for affordable housing developers, the H.R. 8 made a notable change to the law.
Once again, the Government Accountability Office has issued a report that ignores the time value of money discount inherent in the new market tax credit (NMTC). On page 24 of its report, released today, “Tax Expenditures: Background and Evaluation Criteria and Questions” the GAO states:
On Jan. 2, 2013, President Barack Obama signed into law the American Taxpayer Relief Act, which among many other things contains a provision which extended the 9 percent rate floor to any project receiving a low-income housing tax credit (LIHTC) allocation prior to January 1, 2014.
Here is the legislative language passed by the Senate 89-8 on fiscal cliff deal. The House is expected to vote later today.
SEC. 302. EXTENSION OF TEMPORARY MINIMUM LOW-INCOME TAX CREDIT RATE FOR NON-FEDERALLY SUBSIDIZED NEW BUILDINGS.
(a) IN GENERAL.—Subparagraph (A) of section 42(b)(2) is amended by striking ‘‘and before December 31, 2013’’ and inserting ‘‘with respect to housing credit dollar amount allocations made before January 1, 2014’’.
Sens. Charles Schumer, D-N.Y., and Robert Menendez, D-N.J. announced that they will introduce The Hurricane Sandy and National Disaster Tax Relief Act of 2012. The tax package will include a $500 million emergency supplemental new markets tax credit (NMTC) allocation per year for three years for community development entities (CDEs) serving disaster areas.
Former Treasury Assistant Secretary for Tax Policy Eric Solomon, speaking this week at the NMTC Coalition’s annual conference, listed seven opportunities and challenges of the new markets tax credit (NMTC) program. They were:
As the nation has come together to assist in Hurricane Sandy recovery efforts, many proposals involving tax credits have been put forth such as providing temporary higher historic tax credit percentages and an additional targeted allocation of low-income housing tax credits.
In August the Internal Revenue Service proposed updates to low-income housing tax credit utility allowance regulations. The proposed regulations cement industry practice of using submetering arrangements to charge tenants utilities based on actual consumption, while using the applicable utility allowance to determine the maximum tenant paid rent.
According to the National Parks Service (NPS), more than 48 percent of completed rehabilitation projects that received certifications from NPS in 2011 also utilized state historic tax credits (HTCs).
When Pennsylvania enacted a state HTC program in July, it became the 34th state to offer state-level tax incentives for rehabilitating historic buildings.
While a lot of attention has been focused on the results of the presidential election, for the tax credit community, the election’s effect on a few key congressional committees may be even more significant.
In February, the White House and Treasury Department proposed lowering the top overall corporate tax rate from 35% to 28%, a full 20% reduction in the top rate. They also proposed lowering the top corporate tax rate on manufacturing from 35% to 25%, a reduction of more than a quarter (28.6% to be more exact).
Speaking at NYU Tax Conference, IRS Associate Chief Counsel Curtis Wilson says: “We do not intend to discourage legitimate credits for investments in appropriate activities”.
Wilson spoke at New York University’s School of Continuing and Professional Studies 71st Institute on Federal Taxation.
Per BNA, Wilson said the tax credit program “is not under attack” in the case, and “There has to be a real investment, not just the sale of tax credits”.
The Internal Revenue Service (IRS) this week published the amounts of unused low-income housing tax credit (LIHTC) carryovers for calendar year 2012 that were allocated to 34 qualified states and Puerto Rico.
Last week, the CDFI Fund released the monthly update to its ongoing Qualified Equity Investment Issuance Report. The report identifies the dollar amount of new markets tax credit allocation authority that has been issued to investors, and the amount remaining to be issued to investors.
Interest in the new markets tax credit program remains steady, as evidenced by today’s announcement from the CDFI Fund that the tenth allocation round was oversubscribed by more than 4:1.
Here’s a look back at the historical demand for new markets tax credits:
I have been getting a lot of questions about the statutory language passed by the Senate Finance Committee to extend the 9 percent low-income housing tax credit (LIHTC) credit percentage floor. So here it is.
As proposed in S. 3521 Family and Business Tax Cut Certainty Act of 2012:
“SEC. 202. EXTENSION OF TEMPORARY MINIMUM LOW-INCOME TAX CREDIT RATE FOR NON-FEDERALLY SUBSIDIZED NEW BUILDINGS.
The Congressional Research Service recently released a report entitled “The Corporate Income Tax System: Overview and Options for Reform.”
Many of the observations and comments in the report are similar to what I have blogged about in the past. Of particular note, from the report, is the following:
Renewable energy professionals are reminded that the online application system for the Section 1603 cash grant program closes for new applications at midnight on Sept. 30, 2012.
In addition to submitting an application through that system, Section 1603 grant applicants must also register with the System for Awards Management (SAM) before a payment can be made.
The Internal Revenue Service (IRS) is conducting more examinations of the municipal bond sector, according to a new report by the Treasury Inspector General for Tax Administration (TIGTA). In a review of the IRS’s Tax Exempt Bonds (TEB) Office’s enforcement activities over a five-year period, TIGTA found that its examination program has dramatically increased coverage of the municipal bond sector by conducting more examinations.
Since its inception, the low-income housing tax credit (LIHTC) program helped produce more than 2.2 million affordable apartments, accounting for roughly one-third of all multi-family rental housing constructed between 1987 and 2006. A new report by the U.S.
How heroic was the revenue neutral Tax Reform Act of 1986? How much political courage did lawmakers exhibit?
Bear in mind $36 billion was raised over 5 years by closing tax shelters and corporations were asked to pay an extra $120 billion over the same 5 year period.
Which meant there was about $156 billion for individual tax cuts over 5 years.
Yet, tax reform was still hard, and took a couple of years.
So how hard will revenue neutral Tax Reform be in 2013?
Let me know your thoughts in the comments section below.
Senate Finance Committee Chairman Max Baucus, D-Mont., and Ranking Member Orrin Hatch, R-Utah, announced that tomorrow, August 2, the committee will markup legislation to extend a number of tax provisions that have expired or will expire at the end of this year.
So what’s in the current package? Among other things:
Yesterday, the Senate passed the Sequestration Transparency Act of 2012. The legislation, passed by the House earlier this month, requires President Obama to detail how the administration plans to implement the budget sequestration cuts scheduled to take place in January 2013 under current law.
According to a recently released Treasury Inspector General report, “The number of partnership audits has increased as the IRS strives to maintain coverage over the growing number of partnership returns filed while addressing the compliance risk they pose.”
Here are some key points from the report:
The Community Development Financial Institutions (CDFI) Fund opened the 10th new markets tax credit (NMTC) allocation application round on Friday, July 13. This year, as with each allocation round, the CDFI Fund made several changes to the application and a number are worth noting.
The Center on Budget and Policy Priorities has released a proposal for a Renters’ Tax Credit, and the concept brings to mind Griffin Mill (portrayed by Tim Robbins) in the movie, The Player.
Remember Griffin Mill’s quotes, “It’s ‘Out of Africa’ meets ‘Pretty Woman’” or its “‘Ghost’ meets ‘Manchurian Candidate’”?
Well, the new renters’ tax credit is LIHTC meets tenant based vouchers, or LIHTC meets project based Section 8.
At last month’s National Council of State Housing Agencies Conference, researchers from New York University’s Furman Center for Real Estate and Urban Policy and the University of Massachusetts Boston shared the results of a study called “What Can We Learn about the Low Income Housing Tax Credit Program by Looking at the Tenants.”
In February 2009, Congress created the Tax Credit Assistance Program (TCAP) and the Section 1602 programs to address lack of private investment in low-income housing tax credit (LIHTC) projects caused by the severe market disruptions that began in 2008.
By now it’s no secret that momentum for tax reform efforts and a sustained focus on deficit reduction in Congress could affect the future of the historic preservation tax credit. Enter the National Trust for Historic Preservation and the Historic Tax Credit Coalition (HTCC), of which Novogradac & Company is a member, which are cosponsoring a national campaign to support this proven program.
In this month’s issue of the Novogradac Journal of Tax Credits I write how the tax credit community can use the next several months as an opportunity to educate lawmakers about the important benefits of tax expenditures such as the new markets tax credit (NMTC).
On May 16, the White House released a report entitled “Moving America’s Small Businesses & Entrepreneurs Forward.” The report is billed as a comprehensive look at what investments the Obama Administration has done to support small businesses.
Tucked away on page 14 of the 87-page report is an interesting tidbit that may be the first public release of information about an effort related to the new markets tax credit. Under the heading “Simplifying Tax Credits” the report says:
This week the Congressional Budget Office (CBO) released analysis suggesting that unless lawmakers are able to address the multitude of fiscal deadlines they will face beginning on October 1, the country might face a recession in 2013.
As momentum grows for tax reform, specific proposals are also gaining steam. One of these is the proposal to limit individuals’ and businesses’ ability to deduct interest expense.
Brett Ferguson, with BNA is reporting that Ways & Means Chair Dave Camp says the House is considering 34 different ways to get an expedited tax reform process and avoid sunsets like those created in 2001. Camp told BNA the Ways & Means committee may hold a hearing on the matter.
Regarding Extenders, Camp said that Select Revenue Measures Subcommittee Chair Pat Tiberi (R-OH) will hold more hearings to discuss which extenders should be renewed.
Camp would not commit to bringing an extenders bill to the House floor before November elections.
In a recent letter to the IRS, the LIHTC Working Group proposes allowing owners to charge rents on low-income housing tax credit exempt units, such as manager and maintenance units. The group argues that charging rent should not disqualify the units under Section 42. The group also suggests that these units, whether free of rent or not, should not be included in the applicable fraction.
Today Congressman Pat Tiberi, Chairman of the Subcommittee on Select Revenue Measures, held a hearing on tax extenders. The hearing was intended to provide a formal opportunity for the subcommittee to hear about the merits of extending – or not extending – expired or expiring tax provisions.
Here are some highlights:
This week I attended the National Council of State Housing Agencies’ 2012 Legislative Conference, “Stand Strong for Housing.”
A highlight for me was a panel with Congressional staff members. Here are some excerpts of what they had to say:
Speaking about the Low-Income Housing Tax Credit:
Today Congressman Pat Tiberi, Chairman of the Subcommittee on Select Revenue Measures, held a hearing on tax extenders. The hearing was intended to provide a formal opportunity for the subcommittee to hear about the merits of extending – or not extending – expired or expiring tax provisions.
Here are some highlights:
On April 3, the Financial Stability Oversight Council (or FSOC) approved rules that it will use to determine which nonbank financial companies are considered systemically important financial institutions, or SIFIs. Duly designated SIFIs will be supervised by the Federal Reserve Board and be subject to additional standards and regulatory reporting requirements.
Last week I reviewed the amount of housing-related tax expenditure cost that goes to the low-income housing tax credit (LIHTC), based on data for fiscal year 2009. Because of the market disruption at the end of the last decade, and the resulting enactment of the Section 1602 LIHTC cash grant exchange program, some have wondered if the 2009 numbers were a fair representation.
According to fiscal year 2009 data included in the Analytical Perspectives document that accompanied the proposed FY 2011 Budget of the United States Government, the low-income housing tax credit is the eighth largest housing-related tax expenditure in the tax code.
On March 7 the Community Development Financial Institutions (CDFI) Fund announced the approximate timing for its plans to update program eligibility criteria based on new poverty and income data that was released in December from the 2006-2010 American Community Survey (ACS).
Wondering how you can support the important work being accomplished with the low-income housing tax credit, new markets tax credit, historic tax credit or renewable energy tax credit?
Below are some links you can use to contact your legislators and let them know why you support these important programs. Whenever possible, communicate to lawmakers the benefits these tax credits are providing in their states and home districts.
Here are some highlights from the the President’s just released tax reform framework:
Reduce the corporate tax rate from 35 percent to 28 percent
Eliminate dozens of business tax loopholes and tax expenditures
- LIFO Accounting
- Oil & Gas Preferences
- Insurance Industry Products
- Tax Carried Interests Income as Ordinary Income
- Special Depreciation for Corporate Aircraft
Reform Corporate Tax Base
- In his proposed budget for fiscal year 2013, President Barack Obama includes several tax provisions of interest to the affordable housing, community development and renewable energy communities.
- Extend 100 Percent First-Year Depreciation Deduction. Applies to property acquired and placed in service through 2012 (2013 for property eligible for a one-year extension of the placed-in-service date).
- Provide Additional Tax Credits for
Select Tax Highlights from the President’s Budget:
On Monday, February 6, Sen. Ben Cardin introduced bipartisan legislation that would create jobs through the restoration of historic buildings. S. 2074, the Creating Prosperity through Preservation (CAPP) Act of 2012, is cosponsored by Sen. Olympia Snowe. The bill has been referred to the Senate Finance Committee, of which Cardin is a member.
Last month Ways and Means Committee Ranking Member Sander Levin announced he would reintroduce legislation to change the taxation of income from carried interests. He authored similar legislation twice before, in 2007 and 2009.
In last night’s State of the Union address, President Barack Obama focused much of his time on taxes, energy and employment. He also touched briefly on the housing crisis, but did not mention affordable rental housing.
Tax Reform – Corporate
President Obama spoke about tax reform in two different sections of his address. He spoke first about corporate tax reform and later about personal tax reform.
Last week, California Assembly Bill 643 was amended to include the creation of a California New Markets Tax Credit Program. A.B. 643 would authorize the California Tax Credit Allocation Committee or TCAC to grant up to $50 million in state new markets tax credits each year from 2013 through 2019.
On December 23, four federal agencies extended the comment period on a proposal to implement a provision that could have significant implications for the tax credit community.
In October, the Internal Revenue Service submitted a brief to the Third Circuit Court of Appeals, asking the court to reverse the Tax Court’s decision in the case of Historic Boardwalk Hall LLC v. Commissioner.
On December 12, the Treasury Department published two new questions and answers, 23 and 24, in its Beginning of Construction FAQ document. The new guidance provides some insight and clarity into transactions that involve successors in interest of specified energy property.
Yesterday, a bipartisan, bicameral group of lawmakers introduced legislation to make permanent the 9 percent tax credit percentage floor for the low-income housing tax credit (LIHTC) as originally but temporarily authorized by the Housing and Economic Recovery Act of 2008 (HERA). The legislation would also extend the same policy to 4 percent allocated housing tax credits (but not 4 percent LIHTCs generated by tax-exempt bond financing).
In today’s issue of The Daily Iowan, Senator Chuck Grassley discusses the outlook for wind energy, including a call for the renewable energy production tax credit to be extended. Specifically, he writes:
“… the tax credit should be extended long enough to give investors certainty in order to maximize the opportunities … Developers depend on the production tax-credit to improve a renewable energy facility’s cost-effectiveness by freeing up money for investment.”
A repeal of “almost all of the major corporate tax expenditures,” on a revenue neutral basis, would result in the top corporate tax rate falling from 35% down to 28%, according to a Joint Committee of Taxation memo about the estimated revenue effects of corporate tax reform revenue raising provisions dated October 27, 2011. The 28% figure is short of Chairman Dave Camp
The new markets tax credit (NMTC) is often compared to the low-income housing tax credit (LIHTC), and commentators often note that the NMTC sells for less than the LIHTC on a dollar per credit basis. This difference is largely attributable to the fact that the NMTC reduces income tax basis and the LIHTC does not. In essence, the NMTC is a taxable credit.
Last Thursday, I testified in Washington, D.C. on behalf of the NMTC Working Group regarding the Internal Revenue Service’s efforts to reduce the regulatory barriers that inhibit NMTC investments in non real estate businesses. My testimony targeted three areas:
Draconian Tax Credit Recapture,
Reasonable Expectations Test, and
Allocation of NMTC.
The Joint select Committee on Deficit Reduction (Super Committee) held a hearing today, September 22nd, where they discussed the current corporate and individual income tax system and tax reform. Here are some interesting points that came out of the hearing. Send me an e-mail with any thoughts you have regarding the hearing.
The Joint Select Committee on Deficit Reduction, also known as the Super Committee, holds its first meeting today. The Committee is tasked with identifying and agreeing on $1.5 trillion in deficit reduction measures. At the time of this writing it’s considered unlikely that revenue measures will be part of the package.
As we consider various tax expenditures, with Tax Reform looming on the horizon, a framework for evaluating each tax expenditure is needed. I have blogged about this need before.
One starting point would be preparing an analysis similar to that contained in Section 272 of the ‘‘American Jobs and Closing Tax Loopholes Act of 2010”. Section 272 would have mandated that the Joint Committee on Taxation prepare the following analysis for each tax expenditure:
Here are the key dates for the Super Committee created by the debt ceiling increase / deficit reduction bill.
Get ready for a rocky road.
August 16, 2011: Deadline for appointments to Joint Select Committee (so called “Super Committee”)
September 16, 2011: First Meeting of the Joint Select Committee
October 14: Each Committee of the House and Senate may submit to the Joint Select Committee its recommendations
November 23: The Joint Select Committee votes on a report, recommendations andlegislative language
The recent IRS NMTC notices regarding NMTC investing in non-real estate operating businesses are thought provoking exercises that will have limited short-term impact, but may yield significant longer term benefits. The notices have two key parts. First, theyPROPOSE a change to the reinvestment rules for investments in non-real estate operating businesses. Second, they REQUEST COMMENTS on other ways to increase the level of NMTC investment in non-real estate operating businesses. Let’s start with the PROPOSED rule, and then move to the REQUEST FOR COMMENTS.
At a House of Representatives hearing on June 1, the wind and solar energy industries had an opportunity to publicly state their major tax legislative initiatives for 2011.
The wind energy industry emphasized extension of the production tax credit beyond 2012. Roby Roberts, Co-Chairman, Legislative Committee, American Wind Energy Association, said:
Yesterday, Treasury Secretary Geithner reaffirmed President Obama’s hope to push corporate tax reform before the 2012 presidential election. A few weeks ago, HUD Secretary Donovan juxtaposed Tax Reform and the Low-Income Housing Tax Credit.
As many know, the Community Reinvestment Act of 1977 (CRA) is undergoing regulatory review, and the results of that review will affect the investment appetite of CRA motivated investors. There has been no comprehensive review of CRA since 1995.
So what is likely to happen?
First, a proposed rule will likely be available later this year. Further, here is my analysis of some items likely to be part of the proposed rule; items that are of particular relevance to the affordable housing and community development field:
As corporate tax reform is discussed, and rumors and concepts swirl, here is a list of some possible components. Remember, the goal is to reduce the top corporate tax rate from 35% to less than 30%, with the question of “how low can you go?”
To lower the top corporate tax rate, you need to eliminate various targeted tax expenditures, change foreign tax rules, and/or expand the number of entities subject to corporate tax. So here is a list of items that would help Congress lower the top corporate tax rate.
The following is a draft of a chart that compares the House Republicans deficit reduction plan to President Obama’s plan. Between those two bookends are some preliminary numbers that Senator Conrad’s plan might have.
As Congress addresses the slow recovery and high unemployment rate, along with Tax Reform and resolving the future of the GSEs, there is considerable discussion as to the federal government’s relative support of homeownership versus rental housing. Over recent history, home ownership rates have been in the high 60’s, about a 2 to 1 ratio of homeowners to renters. (In the early 50’s the homeownership rate was in the high 50’s, or about 1.3 to 1 homeowners to renters.)
Washington Examiner political columnist Timothy Carney has targeted the Section 1603 cash grant program.
Carney’s piece, “Boondoggle in tax code: Subsidies for green energy,” came after President Obama argued for cutting $1 trillion of “spending in the tax code” over 12 years. Currently the tax code contains annual “spending” of ~$1.2 trillion. President Obama suggested reducing that annual “spending” by about 7%, or $83 billion a year.
NPR is running a piece today on the battle of budget words. The theme of the article is the concept of tax expenditures. Unfortunately, the article states that “tax credits cost the government $1.2 trillion a year.” The writer surely meant tax expenditures, which includes tax deductions, income exclusions and tax credits. Items like deductions for mortgage interest and charitable contributions, income exclusions for health care insurance, and tax credits for child care costs.
Have you wondered what impact the repeal of the LIHTC would have on the top corporate tax rate? In the debate over corporate tax reform, the Holy Grail is to get the top rate of 35% below 30%; some have suggested that if you repeal all corporate tax expenditures you can get to 28%.
If you are wondering what the future of tax reform is, and more specifically, the future of various tax credits, including the low-income housing tax credit, the new markets tax credit, the historic tax credit, and renewable energy tax credits, look to the coming vote on increasing the debt ceiling.
Yes, the congressional vote on increasing the debt limit will be a (maybe THE) key inflection point.
As a regular reader of Accounting Today, I was disappointed by the commentary published on February 23, 2011 on accountingtoday.com entitled “Gaming the New Markets Tax Credit,” by Michael Cohn, editor-in-chief. I believe the commentary was narrow and misrepresented the story of the New Markets Tax Credit (NMTC) program.
ICYMI: Here is a nice little gem from the U.S. Department of the Treasury FY 2012 Budget in Brief:
Explaining reasons for budgeted levels of salaries and expenses for the Office of Inspector General:
As discussed in a previous blog posting, as America faces unprecedented budget deficits, attention is directed to ways to cut spending, raise revenue and reduce federal tax expenditures. This attention results in public statements popping up, almost at random, that inaccurately describe spending programs, tax provisions and federal tax expenditures.
As they pop up, however, efforts must be undertaken to Whac the inaccuracy back into the hole, lest an isolated inaccuracy becomes the common opinion.
Here are some initial highlights from the FY 2012 Greenbook
Page 19 (27 of the PDF) – extend NMTC through 2012 and provide $5 billion; allow NMTC to offset AMT
Page 22 (30 of the PDF) – Allow LIHTC-supported projects to elect an average-income criterion; provide 30 percent basis boost to 4% deals
Page 15 (23 of PDF) – $5 billion more for Section 48C
With apologies in advance to PETA and all Mole lovers, I feel like I am back in the mid 70’s playing Whac-A-Mole. As America faces unprecedented budget deficits, attention is directed to ways to cut spending, raise revenue and reduce federal tax expenditures. This attention results in public statements popping up, almost at random, that inaccurately describe spending programs, tax provisions and federal
The following is an update of some of the key upcoming affordable housing/community development inflection dates for 2011. Let me know of others that should be added.
Mid Feb. 2011 – Treasury GSE Plan scheduled to be released.
Mid. Feb. – NMTC Awards – $3.5 billion
Mon., Feb. 14 – Obama FY 2012 Budget Release
Mar. 4 – Continuing Resolution Expires
Mar./Apr. – Federal Debt Limit Reached
April 1 – Senate Budget Committee reports concurrent resolution on the FYE 2012 budget
The following are some key upcoming affordable housing/community development inflection dates for 2011. Let me know of others that should be added.
January 2011 – Treasury GSE Plan scheduled to be released.
Tues., Jan. 25 – Obama 3rd State of the Union
Jan./Feb. – NMTC Awards – $3.5 billion
Mon., Feb. 7 – Obama FY 2012 Budget Release
Mar. 4 – Continuing Resolution Expires
Mar./Apr. – Federal Debt Limit Reached
June 30 – End of IRS Guidance Planning Fiscal Year
Sept. 30 – Federal 2011 Fiscal Year Ends
New Ways & Means Republicans:
Vern Buchanan (FL)
Jim Gerlach (PA)
Tom Price (GA)
Adrian Smith (NE)
Lynn Jenkins (KS)
Chris Lee (NY)
Erik Paulsen (MN)
Aaron Schock (IL)
Rick Berg (ND)
Diane Black (TN)
Key Features of the Obama-Republican tax package (based on best information available at this time & we expect changes – Check back frequently): (This blog has been updated IN BOLD for draft of Senate bill, Thurs night-12/8.) Updated 12-13.
Stay tuned, as Senate debates bill and House objects, more ‘tweaks’ are likely.