Tax Reform - Senate Bill Rundown
You're probably aware that the Senate version of the Tax Cuts and Jobs Act passed 51-49 in the wee hours of the night on Saturday morning. There will now be a conference committee between Senate and House negotiators to produce a bill that both houses could pass and that the President would sign.
Although the Senate bill is much better for affordable housing due to its preservation of tax-exempt bonds and 4% LIHTCs, there was a last-minute amendment that could impact the industry. Senator Roberts of Kansas included an amendment that adds a mandatory basis boost for 9% LIHTC projects if the project is located in a rural area. Basis boosts, which are currently mandatory for both 9% LIHTCs and 4% LIHTCs in low-income and high-cost areas, increase the amount of LIHTCs a project can qualify for by increasing the amount of eligible basis upon which the LIHTC is calculated by 30%. The problem with the Roberts amendment is that it offsets the expansion of the basis boost to rural areas by reducing ALL basis boosts to 25% and making the change effective as of Jan 1, 2018 even for projects that haven't placed in service (completed construction or rehab).
I happen to have two 4% LIHTC projects that could be impacted by this. To test the impact I ran the LIHTC calculation with the new 25% basis boost. The total LIHTC investment decreased by $185,000 (of $4.75 million) or $4,625 per unit. While this is a relatively small amount it adds up when you multiply it across the entire country. Even more problematic is that this project is currently under construction. The $185,000 reduction would occur after the financial sources have been finalized and the funding gap it will create will need to be filled somehow. Regulatory changes like this should be phased in to avoid impacts on projects that are already underway.
The continuing roller-coaster is a reminder that affordable housing industry members should communicate with their representatives and senators about the many impacts the pending bill could have on our industry.
Losing $4,625 per unit is equal to taking this away from the apartments: