CARH’S BROADCAST EMAIL – Legislative Update

November 3, 2017

1)  House Ways and Means Committee Releases H.R. 1, “Tax Cuts and Jobs Act”

The U.S. House of Representatives (House) Ways and Means Committee unveiled the long-awaited tax reform bill, H.R. 1, Tax Cuts and Jobs Act, and it is clear, if implemented as written, it would materially change affordable housing transactions and businesses. Below is an outline of the proposed bill’s provisions:

• Low Income Housing Tax Credit (Housing Credit) is retained.
• The corporate tax rate is to be permanently lowered to 20% (there is also a 25% rate established for pass-through entities, i.e., LLCs, LPs, with limitations for active income). There is no off-setting increase in credit amounts or rates for the Housing Credits.
• The New Markets Tax Credit is slated for termination, as are Private Activity Bonds and advance refunding bonds (effective for bonds issued after 2017) and Historic Tax Credits (subject to 24 a month transition).
• The bill disallows deductions for business interest in excess of 30% of adjusted taxable income (although this excludes small businesses (i.e., businesses with average gross receipts $25 million or less)).
• Solar, wind, and other energy investment tax credits are retained over the five-year phase out under current law. The 30% credit is retained for property the construction of which begins before 2020, with no investment tax credit (ITC) available for property commencing construction after 2021.
• The deduction for unused business credits would also be repealed, effective for tax years beginning after 2017.
• Credit for expenditures to provide access for disabled individuals would be repealed, effective for tax years after 2017.
• The mortgage interest deduction would be reduced. The $1 million interest deduction limitation would be reduced to $500,000 for debt incurred after November 2, 2017; interest would be deductible only on the primary residence; interest on home equity indebtedness after the effective date would not be deductible; for the refinancing of debt incurred prior to November 2, 2017, the refinanced debt generally would be treated as incurred on the same date that the original debt was incurred (for purposes of determining the limitation amount applicable to the refinanced debt); when a taxpayer enters into a written binding contract before November 2, 2017, the related debt would be treated as being incurred prior to November 2, 2017.
• The bill repeals deduction of state and local income and sales taxes, but retains the ability to deduct up to $10,000 in real property taxes.
• Finally, there would be a repeal of the technical termination rule. Partnerships would be treated as continuing even if 50% (or more) of the total capital and profits interests are sold. New elections would not be required or permitted. This would go into effect starting after 2017.

As a reminder, the Tax Cuts and Jobs Act falls under reconciliation rules, as laid out in the budget resolution. Thus, the legislation will enjoy privileged status in the Senate, which means fewer procedural hurdles and the legislation will require 51 votes, rather than 60, to pass it. The GOP currently controls 52 Senate seats, and thus, they can only lose two members and still pass the legislation (the Vice-President would break a tie vote). The House will require a majority, and while the GOP enjoys a wider governing margin, it can still only risk losing a handful of its Members as the measure appears, at this time, to enjoy no support from the Democratic minority members.

To read the bill in its entirety, click here. To read the official section-by-section summary, click here.

The House Ways and Means Committee is expected to mark up the bill as early as Monday, November 6 and will attempt to send the marked-up legislation to the full House so that it may be considered prior to the Thanksgiving holiday. This afternoon, Representative Brady, Chairman of the House Ways and Means committee released the “Chairman’s mark,” which reflect additional changes to the initial bill. Click here to see the Chairman’s Mark. Click here to see the summary of changes reflected in the Chairman’s Mark prepared by the Joint Committee on Taxation. Click here to read the Joint Committee on Taxation revenue table for the Chairman’s Mark. Along with the Chairman’s Mark, he issued the following statement:

“Today I have released the text of the Tax Cuts and Jobs Act that will be considered by the Ways and Means Committee on Monday. This substitute amendment contains technical changes and additional modifications to the introduced bill. It also makes a change to conform the bill with the budget instruction and removes a provision that would have possibly jeopardized privilege of the bill in the Senate. 

“At the start of our markup on Monday, I will also offer an additional amendment making more substantive improvements to the bill.

“This is another important step on our path to pro-growth tax reform that will deliver more jobs, fairer taxes, and bigger paychecks for people across our country.”

Chairman Brady has also indicated that members of the Ways and Committee will have an opportunity to offer amendments during the markup, which as indicated above is scheduled for Monday, November 6. He announced that no amendments will be permitted on the House of Representatives when the full House takes up H.R. 1. Any changes to the proposed bill will need to be made during full Committee consideration of the bill.

The Senate is likely to introduce its tax legislation the week of November 13th. This is a very ambitious schedule and it is quite possible dates will slip, particularly if Members express concerns, reservations, or opposition.  CARH will continue to review the proposed legislation and markup in detail and report out to you.

Needed Action by CARH Members:

CARH members should contact their Representatives and Senators and express your support for the Housing Credit, and the need to increase the Housing Credit to offset the effects of reduced corporate tax rate. Corporations are the targeted purchasers for the Housing Credit. The amount of Housing Credit has to be increased, the annual credit rate has to be raised, and the pool of purchasers broadened.

CARH members also regularly use Housing Bonds, part of Private Activity Bonds and we ask you remind your members of Congress to save Housing Bonds. The elimination of Private Activity Bonds used for affordable housing, particularly rural preservation transactions, will have a devastating impact on the Housing Credit. It will reduce production by as much as 50%, and together with the lower corporate tax rate, reduce production by approximately 65%.

Of course, there are a number of other provisions noted above, and other provisions still under review that may be important to you and now is the time to express your support for programs that help you develop, own and manage quality affordable housing.

To contact your Representative, click here. To contact your Senator, click here. Social media (i.e., Twitter and Facebook) is also a very effective way to deliver your message. (The contact links also include links to your members of Congress social media pages.) Whichever contact method you use, it is important that you make your message personal. Your message should be one that will show the impact of changes to your portfolio and to rural housing across the country.  Specific examples are important especially when legislation is being considered that will negatively impact your business as well as the residents who live in your affordable apartment communities.

Finally, as many of you are aware, CARH is on the Steering Committee for the Affordable Rental Housing: A Call To Invest in Our Neighborhoods (ACTION) coalition. Today, the ACTION coalition issued a statement in response to the H.R. 1. The statement thanks the committee for retaining the Housing Credit but expresses the devastating impact that eliminating private activity bonds will have on production. The statement also urges the committee to make programmatic changes to offset the negative impact that the 20 percent corporate tax rate will have on credit pricing.

2) Representative DelBene Introduces the Access to Affordable Housing Act

As you will recall from CARH’s March 22 broadcast email, Representatives Pat Tiberi (R-OH) and Richard Neal (D-MA) introduced H.R. 1661, Affordable Housing Credit Improvement Act of 2017. That bill was similar, but not identical, to legislation introduced in the Senate (S. 548) by Senators Maria Cantwell (D-WA) and Orrin Hatch (R-UT). S. 548 includes provisions to increase the annual allocation for low-income housing tax credits by 50 percent, establish a minimum 4 percent credit rate, allow income-averaging, modify student occupancy rules, allow states to grant a 30 percent basis boost if it’s necessary to make a project financially feasible, rename the Low-Income Housing Tax Credit to the Affordable Housing Tax Credit, and more.

H.R. 1661 included similar provisions to S. 548 except that it does not provide for an increase to the annual allocation for Housing Credits by 50 percent. On October 31^st, Representative Suzan DelBene (D-WA) introduced the Access to Affordable Housing Act (text of legislation is not yet published). According to the press release, the legislation would increase the federal Housing Credit allocation by 50 percent. With the introduction of the tax reform bill there is now a tax vehicle for measures like Tiberi/Neal, Cantwell/Hatch and this new bill. Of course, the challenge will be moving in provisions like these when tax reform seeks to eliminate programs and searches for areas to cut to keep in line with the current budget resolution.

Representatives Pramila Jayapal (D-WA) and Adam Smith (D-WA) are cosponsors of the bill. Representatives DelBene (who also serves on the House Ways and Means Committee) and Jayapal are also both co-sponsors of H.R. 1661.

If you have any questions or comments, please contact CARH at 703-837-9001 or carh@carh.org.