President Proposes Changes to Section 42

The Obama Administrations fiscal 2012 budget makes changes in the tax provisions that govern the Low-Income Housing Tax Credit Program. One change would permit a 30 percent basis increase for bond-financed preservation projects that were originally financed with federal funds, including tax credits. The President also is encouraging mixed-income projects by allowing owners of mixed-income deals to elect an average income standard. Under this option, at least 40 percent of the units would have to be occupied by residents whose incomes average no more than 60 percent of the area median income (AMI). No low-income unit could be occupied by a household with income in excess of 80% of AMI, and any unit with an income below 20 percent of AMI would be treated as having a 20 percent limit. If adopted, which is by no means assured, this provision would give great flexibility to owners with regard to income limits and would certainly encourage mixed-income development.

The fact that these improvements are part of the President’s tax package is a very good sign. It could mean that despite all the current discussions regarding elimination of many tax expenditures, the Administration does not intend to seek elimination of the Low- Income Housing Tax Credit Program.

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