Proposed Changes to LIHTC Program

     On June 4, 2019, S. 1703, “The Affordable Housing Credit Improvement Act of 2019,” was introduced in the Senate. It offers some major revisions to the Low-Income Housing Tax Credit (LIHTC) program. If enacted into law, it would represent the most significant changes to the program since the law was originally enacted in 1986. Major provisions of the proposed legislation are:

  • A 50% increase in LIHTC allocations, phased in over five years;
  • A permanent 4% rate for acquisition costs and projects financed with tax-exempt bonds;
  • A 30% basis boost would be permitted for rural areas and for tax-exempt bond projects;
  • Modification of public use rules to permit LIHTC and tax-exempt bond housing for specific groups, including veterans;
  • Permit use of the Average Income (AI) Minimum Set-aside for tax-exempt bonds;
  • Add specific LIHTC provisions for the implementation of VAWA;
  • Require a “cost reasonableness” component in QAPs for development costs;
  • Increase the number of Difficult Development Areas (DDAs) that are eligible for the 30% basis boost;
  • Repeal the population cap for Qualified Census Tracts (QCTs), opening up more areas to the 30% basis boost;
  • Allow the inclusion of relocation expenses in eligible basis;
  • Eliminate the basis reduction for properties using renewable energy tax incentives;
  • Encourage more LIHTC development in Native American communities by making all such communities DDAs;
  • Give states discretion to increase basis by up to 50% for projects targeting extremely low-income renters;
  • Provide more flexibility for existing tenant eligibility in acquisition/rehab deals;
  • Simplification of the ten-year rule and related party rule by limiting acquisition basis of such properties but not prohibiting the total use of credits;
  • Allow national nonmetropolitan income limits to be used on tax-exempt bond projects;
  • Simplification of the LIHTC student rule by adopting the HUD Independent Student rule;
  • Clarify the ability to claim credits after a casualty loss – even for properties that are not in a federal disaster area;
  • Replace the Right of First Refusal with a purchase option;
  • Require that rents for units with voucher residents be no higher than LIHTC rent for properties using the AI Minimum Set-Aside or the 50% basis boost;
  • Require that the Department of Treasury issue regulations prohibiting local approval or contribution requirements;
  • Require that HFAs – instead to Treasury – determine when a foreclosure was arranged in order to exit an extended use agreement; and
  • Change the name of the program to the “Affordable Housing Tax Credit.”

In terms of timing, if these provisions are not enacted this year, 2021 will probably be the best bet for the changes. Major tax changes are rarely passed during a Presidential election year.