The House Financial Services Committee began its markup of a broader housing bill (H.R. 5830) this week that will also include the Housing Assistance Act (H.R. 5720), which contains three amendments to the federal rehab tax credit approved in markup on April 9th in the House Ways & Means Committee. The three provisions affecting the rehab credit include:
1. Leaseback for not-for-profits. Under current law, taxpayers are not eligible for the full amount of the rehabilitation credit if more than 35% of a rehabilitated building is leased to a State or local government. In such a situation, expenditures that are allocable to the portion of the building that is leased by the government will not be counted in calculating the rehabilitation credit. In general, HR 5720 would allow taxpayers to qualify for the full amount of the rehabilitation credit so long as less than 50% of the rehabilitated building is leased to State and local governments or other tax-exempt entities. This proposal is estimated to cost $265 million over 10 years.
2. AMT relief for rehab projects twinned with the low-income housing credit. The alternative minimum tax (AMT) can increase the cost of implementing housing programs. Under current law, interest on taxexempt housing bonds is subject to the AMT and both low-income housing tax credits and rehabilitation tax credits cannot be taken against the AMT. This limits the marketability of these bonds and limits the incentive effect of these credits. The bill would allow the low-income housing tax credit and the rehabilitation tax credit to be used to offset the AMT and would ensure that interest on tax-exempt housing bonds is not subject to the AMT. These proposals are estimated to cost $2.05 billion over 10 years.
3. Including historic rehab under State QAP criteria. A hybrid provision in HR 5720 providing State housing agencies with greater flexibility to select sites for low-income housing projects and allocate adequate amounts of credit for projects while also including historic rehab as one of the twelve criteria under state Qualified Allocation Plans (QAPs).
The net effect of these provisions would be to create a much greater incentive for using the federal rehab credit in the context of affordable housing while simultaneously providing relief from the Alternative Minimum Tax.
The larger housing bill is expected to hit the House floor next week. Stay tuned for late breaking developments and alerts.
Reprinted by permission of the Public Policy Department of the National Trust