Bipartisan Tax Agreement Restores 12.5 Percent Allocation Increase and Lowers 50 Percent Bond Financing Threshold
Today Senate Finance Committee Chairman Ron Wyden (D-OR) and House Ways and Means Committee Chairman Jason Smith (R-MO) announced an agreement on bipartisan tax legislation, “The Tax Relief for American Families and Workers Act of 2024,” which includes the Affordable Housing Tax Credit Coalition’s top two Low-Income Housing Tax Credit (Housing Credit) production priorities.
If enacted, this legislation would:
- Restore the 12.5 percent allocation increase for 2023 – 2025. This allocation increase was initially enacted in 2018 but expired in 2021. The provision in this agreement would not extend the 12.5 percent retroactively for 2022, but would restore it retroactively for 2023 and keep the provision in place for the next two years.
- Lower the 50 percent bond financing threshold to 30 percent for Private Activity Bond (PAB) allocations made in 2024 – 2025.
Together, these provisions are estimated to finance over 200,000 additional affordable homes than otherwise possible, according to Novogradac. It would also position both priorities for potential extension in 2025, when Congress is expected to enact major tax legislation due to the expiration of most provisions that were included in the Tax Cuts and Jobs Act of 2017 and now this current tax legislation.
“This is the biggest investment in housing in 35 years—and greatly needed…This supply catch-up will help working families in both urban and rural areas across the country, and I’m appreciative of Sen. Wyden and Rep. Smith for including this critical investment in the deal announced today,” said Affordable Housing Credit Improvement Act (AHCIA) lead sponsor Sen. Maria Cantwell (D-WA).
“The Low-Income Housing Tax Credit continues to be an important tool to drive investment in the affordable rental housing market, strengthening communities and generating economic development in areas that need it most. I am pleased that provisions from our Affordable Housing Credit Improvement Act were included in the Tax Agreement, which will provide a much-needed boost in housing supply and benefit seniors and working families in Illinois and throughout the country,” said AHCIA lead sponsor Rep. Darin LaHood (R-IL).
See below for the language included in the published agreement:
- State Housing Credit Ceiling Increase for Low-Income Housing Credit. —In calendar years 2018 through 2021, the 9 percent LIHTC ceiling was increased by 12.5 percent, allowing states to allocate more credits for affordable housing projects. This provision restores the 12.5 percent increase for calendar years 2023 through 2025 and is effective for taxable years beginning after December 31, 2022.
- Tax-Exempt Bond Financing Requirement. —Under current law, to receive LIHTC a building must either receive a credit allocation from the state housing finance authority or be bond financed. To be bond-financed, 50 percent or more of the aggregate basis of the building and land must be financed with bonds that are subject to a state’s private activity bond volume cap. This provision lowers the bond-financing threshold to 30 percent for projects financed by bonds with an issue date before 2026. This section provides a transition rule for buildings that already have bonds issued by requiring that a building must have 5 percent or more of its aggregate basis financed by bonds with an issue date in 2024 or 2025.
- This provision is effective for buildings placed in service after December 31, 2023. In the case of rehabilitation expenditures, which are treated as a separate new building by the IRS, the building is considered placed in service at the end of the rehabilitation expenditures period. The 30 percent requirement is applied to the aggregate basis of both the existing building and the rehabilitation expenditures.
The Housing Credit provisions included in this agreement were among only a handful of other tax provisions that were added to the core agreement, which centered around business tax extenders and the Child Tax Credit. We are grateful for the advocacy and support of all AHTCC members, our industry partners in the ACTION Campaign, and our champions in Congress, including Senators Maria Cantwell (D-WA), Todd Young (R-IN), Ron Wyden (D-OR), and Marsha Blackburn (R-TN) and Representatives Darin LaHood (R-IL), Suzan DelBene (D-WA), Brad Wenstrup (R-OH), Don Beyer (D-VA), Claudia Tenney (R-NY) and Jimmy Panetta (D-CA). The bipartisan agreement still needs to be attached to a legislative vehicle and gain the approval of the broader House and Senate before being enacted. However, if enacted, this will be a significant and sorely needed victory for affordable housing and the people that our industry serves.