Update on Sweeping Tax Legislation in Congress

(Dec. 2017) This month, the most important federal policy issue for those of us who work in the housing and community development field is the tax bill pending in Congress. With versions already passed by both the House andSenate, a congressional conference committee is busily crafting a final bill that can p ass both chambers. The bill’s proponents hope to have it on the president’s desk for a signature by the time Congress leaves for the Christmas break, so time is of the essence for those who want to get involved.

While analysis of the merits of the bill as a whole is outside the scope of NCST’s mission, we want to ensure that our Community Buyers understand the potential this bill has to affect housing affordability, both homeownership and rental. It is likely that provisions in this bill would impede your organization’s mission or cause further
distress in already struggling communities.

Below are some highlights of the bill provisions that would affect affordable rental and homeownership:

  • Both the House and Senate bills retain the Low Income Housing Tax Credit, but they lower the corporate tax rate from 35% to 20%, which significantly reduces the value of the credit.
  • The House bill cuts all private activity bonds (PABs), effectively eliminating the four percent LIHTC program, which supports more than half of all tax-credit affordable rental projects nationwide; the bill also eliminates mortgage revenue bonds and mortgage credit certificates that support homeownership for low and moderate income families.
  • The House bill also eliminates the New Markets Tax Credit and the Historic Tax Credit.
  • The Senate bill excludes certain investors, including foreign-owned banks, from obtaining tax credits through LIHTC, which means fewer investors in affordable housing.
  • The Senate bill reduces the “basis boost” available to properties developed in state-designated low income and high-cost areas, which will make it harder to develop in rural and urban areas marked either by higher production costs, lower incomes, or both.
  • The bills increase the number of years homeowners must live in their primary residence before they can sell their home without incurring significant taxes on capital gains, which will depress homeowner mobility and further reduce already limited inventory of homes for new buyers.
  • Additionally, both bills make changes that will reduce the value of the mortgage interest deduction which, although it tends to benefit higher income homeowners the most, also provides assistance to those purchasing homes in high cost areas.
  • By significantly raising the deficit, the bills may trigger a 2010 law that would force sequestration cuts on housing-related programs, including the National Housing Trust Fund and the Capital Magnet Fund.

For more information, here is an overview of bill provisions that will affect affordable rental housing prepared by the Action Campaign, a very broad umbrella group that is always open to new members. Additionally, the National Association of Realtors has prepared this overview of bill provisions related to homeownership, which might provide helpful background although it is not focused on affordability issues. Finally, the National Association of State Housing Agencies has good information on the importance of private activity bonds in the housing field.

If you have comments, please email those to Julia Gordon.

This column was originally published in December 2017.