CARH’S BROADCAST EMAIL – Legislative Update

December 20, 2017

Yesterday, Congress inched one step closer to passing the conference report accompanying H.R. 1, the Tax Cuts and Jobs Act. Early in the day, the House, by a vote of 227-203, agreed to the conference report and the Senate by a vote of 51-48 passed the report. However, due to reconciliation procedures that were used by the Senate to consider the legislation, minor technical changes were made to the conference report, thus requiring an additional vote to the House. That vote occurred this afternoon by a vote of 224-201. The legislation will likely be on the President’s desk for signature prior to Christmas, though due to an issue with the 2010 Pay-As-You-Go legislation, the actual bill signing may be delayed until January 1 or soon thereafter.

The legislation is the largest tax legislation to successfully pass Congress since 1986. Many of the provisions in the bill for businesses are permanent, while individual provisions (rate reductions) will expire in 2025. CQ Roll Call prepared a chart that outlines the differences between the House and Senate versions and then how those differences were resolved in conference.  Additionally, the fact sheet from the House Ways and Means and Senate Finance Committees, provides a breakdown of the final legislation. Some of the highlights include the following:

• Unless otherwise noted, the provisions in the legislation will become effective in 2018.
• The corporate tax rate is reduced from 35% to 21%. (Both the House and Senate had lowered the rate to 20%. The increase in the corporate rate was needed to offset other provisions agreed to in conference.)
• Private Activity Bonds (PABs) are retained.
• The Housing Credit is retained with no modifications. The Senate had proposed that the general public use requirement exception for artist housing be replaced with one for veterans; treated rural areas as difficult development areas for purposes of receiving a basis boost; and reduced the maximum basis boost for all types of boost-eligible developments from 130 to 125 percent in order to pay for the changes for veterans and rural areas. The conference committee rejected those modifications.
• The New Markets Tax Credit (NMTC) is retained and is currently authorized through 2019.
• The historic rehabilitation tax credit (HTC) is retained but extends the credit period from one to five years. There is ongoing analysis on certain details, such as whether work commenced in 2017 but performed in 2018 is subject to the new five year period. The amendment appears to be applicable to work performed starting in 2018.
• Creates a base erosion and anti-abuse tax (BEAT), which would affect banks’ ability to use the Housing Credit and other credits to offset certain taxes related to foreign earnings and earnings going to foreign parent companies. The BEAT provision in the Senate-passed version of the bill would have only allowed one credit – the Research and Development Credit – to be taken against the BEAT, but the conference version also exempts the Housing Credit at 80 percent of the value of the credits. The NMTC and HTC are not allowable credits to be taken against the BEAT.
• There are changes to the way partnerships calculate interest deductions, and at this early stage many tax professionals are recommending that partnerships need to elect to be an Electing Real Property Trade or Business to avoid the 30% cap on interest deductions. Furthermore, there are ongoing discussions among tax professionals as to how this treatment extends to the upper-tier investors.
• An Electing Real Property Trade or Business would bring in the alternative depreciation requirements, which under the new law would be reduced from 40 years to 30 years.
• Technical tax terminations due to sale or exchange of more than 50% of partnership interests within a 12 month period appear to be eliminated.

No doubt there will be other provisions in the legislation that will have an impact on the affordable housing industry. It will take several weeks before technical experts review every provision to ensure that there are no contradictory provisions or ones that are incorrectly written.  Therefore, as with any major tax bill, there will likely be a technical corrections bill next year and beyond.

The fact that the Housing Credit and PABs were retained indicates the success of the programs and that members of Congress saw the programs as vital to creating and maintaining affordable housing in this country. There is no question that the grassroots efforts of CARH members throughout the country are a key reason the programs were retained. CARH very much appreciates the support of several key members of Congress as the legislation made its way through the legislative process.

The Tax Cuts and Jobs Act will be the hot topic during CARH’s Midyear Meeting next month.  While CARH’s block at the Westin Verasa Napa is full, there are several other hotels in the area that are within walking distance or even a short commute. Therefore, it is not too late to register for the meeting.  

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