Summary
On January 19, 2024, the House Ways and Means Committee approved the bipartisan tax legislation, “The Tax Relief For American Families and Workers Act of 2024”. Two proposed changes to Section 42 of the Internal Revenue Code contained in the Act would boost the amount of Low Income Housing Tax Credits for this year and next year.
On January 19, 2024, the House Ways and Means Committee approved the bipartisan tax legislation, “The Tax Relief for American Families and Workers Act of 2024” (H.R. 7024). Sections 501 and 502 of H.R. 7024 (the LIHTC Amendments) would increase the availability to Low Income Housing Tax Credits (LIHTC) provisions under Section 42 of the Internal Revenue Code as follows:
(1) For 9% LIHTC transactions, H.R. 7024 would increase the state housing credit allocation ceiling by 12.5% for calendar years 2023 through 2025; and
(2) for 4% LIHTC transactions, the legislation would reduce the minimum amount of volume-cap tax-exempt bonds required to receive 4% LIHTC from 50% to 30% (“30% Test”). This change would apply to developments financed with tax-exempt bonds with an issue date before 2026 if the building is placed in service after December 31, 2023. There is a transition rule for buildings that already have a bond allocation.
What Does All of This Mean?
Since state housing credit agencies have already awarded 2023 LIHTC, the increase will effectively mean credit allocators will have an additional 25% of LIHTC to award in 2024 and 12.5% in 2025.
The 30% Test is effective for buildings placed in service after December 31, 2023. If there are rehabilitation expenditures, the rehabilitation component of the building is considered placed in service at the end of the rehabilitation expenditures period. The 30% Test is applied to the aggregate basis of both the existing building and the rehabilitation expenditures. The 30% Test will allow bond issuers to “spread” their volume-cap allocations over more projects because less volume cap bonds will be needed per project to generate the same amount of 4% LIHTC. However, with the reduced bond allocation, developers will have to structure the timing of capital contributions to pay for construction costs or find additional gap funding.
What Else and What’s Next?
In addition to the LIHTC Amendments, H.R. 7024 currently includes provisions that would expand the federal Child Tax Credit and enact a number of other business-related tax provisions related to research and experimental costs, deductibility of business interest, bonus depreciation, and expensing of depreciable business assets. The next step is for the full House of Representatives to consider H.R. 7024. If passed, H.R. 7024 will be sent to the Senate for consideration.
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