Proposed Changes to Affordable Housing
Last month, Senate Finance Committee Chairman Ron Wyden (D-Oregon) announced the Decent, Affordable, Safe Housing for All (DASH) Act as a means to tackle homelessness and address rising housing costs for low and middle income renters and homeowners. If enacted as part of the Budget Reconciliation package, the DASH Act would significantly affect the real estate and affordable housing industries. The DASH Act consists of the following:
Emergency Affordable Housing Act. The Low-Income Housing Tax Credit (LIHTC) consists of two credits: a non-competitive 4% credit, available to any qualifying property, and a 9% credit to be allocated by state housing authorities. Key provisions of the Emergency Affordable Housing Act include a change to the “50 percent test,” which requires at least half of a housing development to be financed through private activity bonds; an expansion of the 4% credit to rural areas; an expansion of the 9% housing credit by 50%; a 50% basis increase to projects that prioritize extremely low-income renters; and a change to the right of first refusal option upon the expiration of 15-year compliance period.
Middle-Income Housing Tax Credit. The Middle-Income Housing Tax Credit (MIHTC) is a tax subsidy for investment in middle-income housing. Similar to the LIHTC program, the federal government would allocate tax credits to the states based on population. State agencies would then allocate the tax credits to developers, allocating only enough credits as would make a property feasible. A tax credit would be provided to developers who house tenants between 60 to 100% of area median income. The credit would equal 50% of the present value of construction costs, or 5% per year on an undiscounted basis. States could also use MIHTC dollars to supplement their LIHTC program.
Renter’s Tax Credit. The Renter’s Tax Credit provides a refundable tax credit to property owners who rent to eligible tenants with incomes at or below 30% of area median income. The credit equals up to 110% of the difference between market rent (including utilities) and 30% of the tenant’s income. Each year, the Treasury would allocate renters’ credits to states through a per capita formula. The allocation of credits would be dependent upon property owners signing a binding rent reduction agreement. Any unused credits will return to a national pool.
Neighborhood Homes Investment Act. The Neighborhood Homes Investment Act (NHIA) is a tax credit to home builders that develop in neighborhoods with: poverty rates of 130% or greater than the metropolitan or state rate; incomes that are 80% or less than area median income; and home values that are below the metropolitan or state median value. The credits would only be available to investors after the homes have been completed and sold to a homeowner. Qualifying homeowners must make less than 140% of the area median income. The maximum credit amount is the lesser of 35% of qualified development costs or 80% of the national median home sale price. State agencies would receive annual allocations of $6 per capita (or $8 million, if higher) and would award NHIA tax credits to project sponsors.
Down Payment Tax Credit for First-Time Homebuyers. The new $15,000 first-time home buyer tax credit is fully refundable and equal to 20% of the purchase price of a home. The credit phases out above 110% of conforming loan limits and above $100,000 of income for single filers ($200,000 for joint filers). The credit can be recaptured if the taxpayer sells the home in under five years, with some exceptions.
Please stay tuned to CLAconnect.com and Real Estate Industry Insights for updates to the DASH Act and other proposed legislation making its way through Congress. Big thanks to Melissa Labant, Courtney DeVane and Olga Zarney for their research and assistance with this blog post!
Source: Finance.Senate.Gov, Tax Foundation, The Real Deal
- Carey M. Heyman, CPA
- Managing Principal of Industry - Real Estate
- CliftonLarsonAllen LLP
- Century City (Los Angeles)
Carey is the Managing Principal of the Real Estate Industry at CLA. He is a trusted advisor with close to 20 years of experience providing accounting, assurance, tax, and consulting services to real estate industry owners, operators, family offices, developers and syndicators. Carey has a strong track record of helping clients build and retain capital by leveraging tax- and cost-saving strategies and employing tax credits and incentives. He also consults with high net worth individuals, large family groups, and owners of closely-held businesses on all aspects of tax planning, estate planning, and retirement planning.
Such incredibly timely and valuable information. Thank you once again, Mr. Heyman!