FEDERAL TAX CUTS PASSED: Affordable Housing tax breaks remain

President Trump will sign a Republican tax cut bill that dramatically reduces the corporate tax rate while retaining many cherished tax breaks including the Low Income Housing Tax Credit (LIHTC) and Private Activity Bonds (PAB) along with the associated 4% as of right tax credit.  The important Historic Tax Credit is also retained but under the bill, Historic Credits will only be available for buildings on the Federal Register of historic places.  The final bill also offers real estate investors a 20% tax dedication against some specific forms of real estate investment.

While housing advocates were successful in their efforts to convince Congress to retain the affordable housing tax credits, the ultimate value of the credits remain to be seen.  By reducing the Corporate and top end personal tax rates, the investment value of the credits will be diminished and therefore it is expected that the amount of equity raised through both the 9% and 4% credit will likely be less.

The final tax bill also retains the popular mortgage interest deduction though again, the value has been reduced by lowering the ceiling on the deduction from $1 million to $750 thousand.  As you know, NYS Rural Advocates has been a supporter of the United For Homes Campaign’s proposal to reduce the ceiling for the MID to $500 thousand and to use the savings to fund the development of affordable rental housing and to provide a tax credit to lower income homebuyers.  Congress and the President do not enact those proposed affordable housing benefits in bill.

Perhaps of greater importance to nonprofit affordable housing interests, the tax bill is expected to result in the loss of more than a trillion dollars in federal revenue over the next ten years which will put tremendous pressure on Congress to reduce spending.  President Trumps first federal budget proposal would have devastated affordable housing programs by eliminating HOME , CDBG and Section 502 direct loans among many other programs.  The Trump proposal would have further reduced HUD Housing Counseling and would combine several smaller USDA housing programs into a fuzzy infrastructure fund.

In their FY 2018 budget proposals, both the House and the Senate restore most of President Trump’s affordable housing cuts and the ongoing Continuing Resolution protects most programs at 2017 funding levels.  Congress is now expected to pass yet another Continuing Resolution before the end of the year, pushing the real battle over funding into early 2018.

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