Tax Deal Would Restore Housing Credit Authority and Lower Bond Test Through 2025

This morning, Senate Finance Committee Chair Ron Wyden (D-OR) and House Ways and Means Committee Chair Jason Smith (R-MO) announced they had reached a deal on tax legislation they hope Congress will pass before the January 29 start of the 2023 tax filing season. After concerted efforts from Housing Credit champions on the Hill and advocacy by NCSHA and our partners in the ACTION Campaign, the deal includes an increase in Housing Credit authority and lowering the multifamily bond financing threshold for 4 percent developments. Specifically, the legislation would:

• Restore the 12.5 percent cut in Housing Credit authority the program suffered after a temporary four-year increase for 2018 – 2021 expired. The bill would boost Housing Credit authority by 12.5 percent for 2023, 2024, and 2025. Because state agencies have two years in which to allocate each year’s annual credit authority, should the bill pass as currently written, states will need to allocate the additional 2023 credits by the end of 2024.
• Lower the tax-exempt bond financing requirement (the “50 percent test”) from 50 to 30 percent for bonds with an issue date before 2026, effective for buildings placed in service after December 31, 2023. A property that already has received partial bond financing prior to 2024 would need to have at least 5 percent of its aggregate basis financed with authority from a bond with an issue date in 2024 or 2025 to benefit from the 30 percent test. For purposes of the placed-in-service requirement, acquisition/rehabilitation buildings — which are treated as two separate buildings under the tax code — would be subject to the 30 percent test for the aggregate basis of both the acquisition and the rehabilitation even if the acquisition’s placed-in-service date is before December 31, 2023, as long as the rehabilitation placed-in-service date is after that date.

The two tax committee chairs have been negotiating this package for the past several weeks, based largely on Democratic priorities to extend and expand the Child Tax Credit and Republican priorities to extend several business tax breaks. Congressional leaders of the Affordable Housing Credit Improvement Act (AHCIA) worked behind the scenes to ensure provisions from their bill expanding the Housing Credit would be included in the package. In addition to the Housing Credit provisions, several other tax changes were added to the bill, including tax changes related to Taiwan, assistance for disaster-impacted communities (not including disaster Housing Credits), and tax administration. At least a significant portion of the deal would be paid for by ending the Employee Retention Tax Credit Program, a Covid-era program that was plagued by cost overruns and alleged fraudulent activities.

In response to the proposal’s release, Senator Maria Cantwell (D-WA), lead Senate sponsor of the AHCIA who was instrumental in getting the Housing Credit added to the deal, tweeted: “This is the biggest investment in housing in 35 years — and greatly needed. It will provide over 200,000 new units nationwide over the next two years. In the State of Washington, it will mean over 6,000 new units.” Representative Darin LaHood (R-IL), the lead AHCIA sponsor in the House, said, “The Low-Income Housing Tax Credit continues to be an important tool to drive investment in the affordable rental housing market, strengthening communities and generating economic development in areas that need it most. I am pleased that provisions from our Affordable Housing Credit Improvement Act were included in the Tax Agreement, which will provide a much-needed boost in housing supply and benefit seniors and working families in Illinois and throughout the country.”

The announcement of the deal is just the first step. Congress has less than two weeks to enact the deal into law in advance of tax filing season, and there are obstacles ahead. While the chairs of both tax committees have reached this agreement, the ranking members — Senator Mike Crapo (R-ID) and Representative Richard Neal (D-MA) — have not signed off on it yet. Their support will be key to passing it. Moreover, it is not yet clear if and how leadership will advance it. Tax legislation typically passes as part of a larger legislative vehicle, such as a spending bill, thus avoiding major amendments to painstakingly negotiated bill language when the bill gets to the floor in both chambers. However, with insufficient time to do what would be needed to attach this package to the continuing resolution (CR) that must pass this week to prevent a government shutdown, the CR is not a viable option. Moreover, the CR would push the deadlines for final FY 2024 federal spending legislation into March, thus Congress is not expected to pass spending bills before the January 29 deadline the tax bill must meet, meaning a spending bill would not be a viable vehicle. Given this conundrum, it is possible House leadership could attempt to bring the tax bill to the floor on its own using the suspension calendar, which would bar rank-and-file members from offering amendments that could complicate or prevent its passage. Bills passed under suspension of the rules must meet a two-thirds majority vote threshold for passing, requiring significant support in both parties. Even assuming the bill makes it through the House, the Senate strategy for passage is still unknown.

More information on the deal is available in this fact sheet.