On January 16, House Ways and Means Committee Chair Jason Smith (R-MO) and Senate Finance Committee Chair Ron Wyden (D-OR) announced an agreement on tax legislation that would expand the Low-Income Housing Tax Credit and include several business tax provisions of benefit to the multifamily industry. Notably, some of these provisions are extended retroactively, and taxpayers may need to file amended returns to take advantage should they be enacted.
While The Tax Relief for American Families and Workers Act of 2024 would spur housing production, prospects for enactment remain uncertain. The House Ways and Means Committee held a hearing to discuss the legislation on January 19. NMHC and NAA submitted comments on behalf of the industry ahead of that hearing. Our comments underscored the importance of leveraging tax policy to spur housing production in order to help address our nation's housing challenges.
Navigate the drop-downs below for a look at key provisions in the proposed legislation.
- Deductibility of Business Interest: Under current law, taxpayers may deduct business interest subject to a limitation of 30 percent of earnings before interest and taxes (EBIT). Prior to 2022, the limitation was 30 percent of interest, taxes, depreciation, and amortization (EBITDA). Multifamily firms are able to elect out interest deductibility limits (and fully deduct business interest) so long as they depreciate buildings over 30 years as opposed to 27.5 years. The provision would extend the 30 percent of EBITDA limitation from taxable years befonning after 2023 (and, if elected, taxable years beginning after 2021) through 2025 without affecting the option for real estate businesses to opt out of the limitation in exchange for the somewhat longer depreciation period.
- Bonus Depreciation: The proposal would extend 100 percent bonus depreciation for qualified property placed in service after 2022 through 2025 to enable taxpayers to deduct the full cost of certain capital investments with a class life of 20 years or less (e.g., equipment and machinery) included in multifamily buildings. Under current law, 80, 60, 40, and 20 percent bonus depreciation are available in 2023, 2024, 2025, and 2026, respectively.
The proposal would increase 9 percent tax credit allocations by 12.5 percent for 2023-2025.
In addition, the proposal would reduce to 30 percent from 50 percent the basis of a project that must be financed by private-activity bonds in order to access 4 percent Low-Income Housing Tax Credits. for projects financed by bonds with an issue date prior to 2026. This provision is effective for buildings placed in service after 2023 and for bonds with an issue date of before 2026. Special transition rules apply to buildings that have already issued bonds.
Under current law, small businesses may expense $1.22 million in qualifying property as opposed to having to recover costs through depreciation. The limit is reduced by the amount by which investment exceeds $3.05 million. Both amounts are adjusted annually for inflation. The proposal would increase tbe limit to $1.29 million and the phase out threshold to $3.22 million in 2024 and increase those amounts by inflation in subsequent years.
The proposal would increase to $1,000 from $600 the reporting threshold applicable to Forms 1099-NEC and 1099-MISC. The 1099-NEC is used to report compensation to non-employees, though exceptions may apply. Additionally, the threshold would apply on a calendar-year basis as opposed to the current-law taxable-year basis. The proposal would be effective for payments made after 2023, and the $1,000 threshold would be adjusted for inflation annually.