- On December 13, 2017
- In Affordable Housing
The Potential Impact of Tax Reform on Affordable Housing
In recent weeks, the pendulum swing of the proposed GOP tax reform bill has bolstered uncertainty about the future state of our economy and how money will flow between municipalities, corporations, public and private institutions, and individuals across income levels. This monumental proposal comes at a pivotal time, as we embark on our 50th Anniversary year, and continue to reflect upon how to thoughtfully shape affordable housing in the years ahead. Two versions of the tax overhaul bill have received approval from the House and the Senate, meaning that a comprehensive proposal that both Congressional bodies can agree upon is under negotiation. At this time, there are a number of tax measures under consideration that relate to the development and financing of low-income housing. Here’s a breakdown of a few items that we are tracking closely as the negotiations unfold:
- Private Activity Bonds – otherwise known as PABs – are tax-exempt loans issued by city and state governments to private and nonprofit developers. These bonds can benefit the public by helping to fund hospitals, airports and affordable housing, but are in danger of being eliminated. According to Novogradac & Company, the repeal of PABs would result in the loss of more than 880,000 affordable rental homes over the next 10 years.
- Outlined in both the Senate and House versions of the tax bill, the corporate tax rate is expected to drop from 35 percent to 20 percent. If approved, this corporate tax rate could substantially devalue low-income housing tax credits (LIHTC), which encourage investment in affordable housing development by allowing investors to claim benefits over several years. Investing in LIHTC is less appealing if investors are paying less in taxes.
- Frequently employed to transform historic structures into low-income multifamily housing units, the Historic Tax Credit is also up for debate. Repealed in the House draft, but only slightly altered in the Senate bill, the Historic Tax Credit has allocated $117 billon towards the preservation and renovation of historic structures since 1981. The loss of the tax credit would drastically reduce the amount of funding available to protect some of our nation’s most beautiful, historic icons, as well as eliminate another means for financing affordable housing projects.