On February 26, 2014, House Ways and Means Committee Chairman Dave Camp (R-MI) released a draft legislative proposal for comprehensive tax reform. The proposal would retain the federal low-income housing tax credit (the “LIHTC”), but make fundamental changes to the LIHTC program. Some of the more significant changes include:
- repealing the 4% LIHTC for tax-exempt bond financed projects (coinciding with the elimination of private activity bonds);
- repealing the 30% basis boost for projects located in a HUD-designated qualified census tract or difficult development area;
- extending the LIHTC credit period from 10 to 15 years to match the 15-year compliance period, and repealing the recapture rules;
- providing that states would allocate qualified basis rather than LIHTC dollar amounts, and
- eliminating the national pool of unused LIHTC.
On a positive note for the affordable housing community, the tax reform proposal retains the LIHTC despite eliminating other tax credit incentives such as the historic rehabilitation tax credit (which was directly repealed) and the new markets tax credit (which was omitted from the reform proposal and left to expire). On the other hand, repealing provisions like the 30% basis boost and the ability to finance LIHTC projects with tax-exempt bonds could significantly limit a project’s financing options and ability to attract investors. At this point it should be emphasized that the Camp proposal is only a discussion draft, and it remains to be seen how much traction, if any, these reforms gain in Congress.