Organizations Seek Further Changes to Assist LIHTC Program

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Two organizations are pressing Congress to approve additional legislative changes to the low-income housing tax credit program (LIHTC) as part of any new economic stimulus package, in order to assist a tax credit market now struggling from a shortage of equity from investors. Congress is expected to put together an economic stimulus measure in early 2009 at the latest.

The Affordable Housing Tax Credit Coalition (AHTCC) has developed and submitted to Capitol Hill a handful of proposed additional legislative amendments to the LIHTC program.

These would:

  • Temporarily reduce the tax credit period to five years from the current 10 years, for housing credit allocations made in 2008-2011. For allocations made in 2008, the five-year period would only apply where a binding contract to invest hadn’t been entered into by the taxpayer first claiming the LIHTC for a particular building before 10/4/08. The same amount of credit would be received over five years as is now received over 10.
  • Permit taxpayers to go back up to five tax years to use their LIHTCs to offset federal income tax liability, and allow these housing credits to offset federal alternative minimum tax (AMT) liability during this period. Current law limits “carryback” of housing credits to one year, and permits credits to be carried forward 20 years.
  • Permit housing credit agencies (HCAs) an additional year to allocate their housing credits before having to return unused credits to the “national pool.” Currently, HCAs may carry forward their unused per capita credits for just one year. If they don’t use them by the end of this successive year, they lose this unused credit authority to the national pool for redistribution to other states.

In its summary memo, the Coalition said, “The proposed solutions…are intended to stimulate new investment from corporate investors which have participated in the program, but whose interest in the Housing Credit has waned, and from new companies which have not previously invested. The key to stimulating new investment is to make the returns to investors more attractive.”

The first two proposed changes are designed to make the housing credit more attractive to corporate investors, and thereby spur increased investment in housing credits. The third change is intended to prevent HCAs from being penalized for being unable to allocate all of their housing credits as a result of the inability of many developers with credit awards to obtain equity. The Coalition’s members include syndicators, developers, and various other participants in the LIHTC program. (Details of AHTCC proposals: http://www.taxcreditcoalition.org/ features/160)

A second organization, the National Preservation Working Group, has proposed that the LIHTC be temporarily made a refundable tax credit, and to extend the carryback period for housing credits to five years. Under its proposals, these changes would be available only for investments in projects awarded credits by HCAs between 12/1/07 and 12/31/10, where a closing has not occurred by the date of enactment.

With a refundable credit, a corporate investor that doesn’t have sufficient tax liability in any year of the 10-year tax credit period would receive a cash refund for the amount of the shortfall.

The group’s proposals to modify the LIHTC, along with other housing legislative proposals, were made in a letter sent to top House and Senate leaders. The Working Group is a coalition of 24 supporters of affordable housing, including the National Housing Trust.

Barbara Thompson, executive director of the National Council of State Housing Agencies (NCSHA), whose member agencies allocate housing credits, told the Tax Credit Advisor in an interview on 11/12/08 that NCSHA was considering a few possible legislative proposals relating to the LIHTC and housing bonds, but hadn’t yet made any final decisions. But she added, “If an economic stimulus bill moves, and it looks like it will, we will be ready with our proposals.”