The bipartisan omnibus spending bill recently passed by Congress includes several victories for the apartment industry, including an expansion and improvement of the Low-Income Housing Tax Credit, increased HUD funding, a short-term extension of the federal flood insurance program and important tax policy changes for REITs.
Low-Income Housing Tax Credit
- Increases the LIHTC allocation by 12.5% for four years (2018-2021). This increase was critical to restoring some of the value to the tax credit after tax reform lowered the corporate tax rate, which lowered the value of the credit to corporate investors and is expected to reduce demand for the credit.
- Makes income averaging a permanent component of the program. Prior to this, LIHTC program rules require owners to either rent 40% of their units to households earning no more than 60% of Area Median Income (AMI) or 20% to those earning no more than 50% of AMI. Now owners to reserve 40% (25% for New York City) of the units in a property for people whose average income collectively is below 60% of AMI.
Employing a 60% AMI ceiling on the entire project rather than individual tax credit units makes the program more flexible and allows for more mixed-income housing. NMHC/NAA have been strongly advocating for Income averaging for several years.
Importantly, the bill provides a 10% increase ($4.6 billion) in overall HUD funding, a $12 billion increase in the administration’s FY18 request which would have actually cut HUD funding by nearly 15%. HOME, CDBG and the Housing Choice voucher program all received increased appropriations.
The bill also increases the number of public housing units that can convert under the Rental Assistance Demonstration (RAD) program from 225,000 to 455,000 and extends the program through 2024. RAD allows public housing authorities to work with private sector developers and managers to preserve their affordable housing stock. Section 8 project-based rental assistance received $11.5 billion, and Housing Choice Voucher received a $1.7 billion increase to $22 billion for the Housing Choice.
Finally, the bill prohibits HUD from requiring local governments alter their zoning policies as part of the agency’s Affirmatively Furthering Fair Housing (AFFH). HUD had previously delayed the deadline by a year for local government to submit the fair housing evaluations required by AFFH.
Tax Policy Changes
- FIRPTA. As part of tax legislation enacted in late 2015, Congress reduced FIRPTA’s negative impact on foreign investment in U.S. real estate by allowing foreign investors to own up to 10% of a property (up from 5%) without triggering FIRPTA. Congress also removed a tax penalty FIRPTA imposed on foreign pension funds investing in U.S. real estate.
The Omnibus bill clarifies that REIT distributions received by a foreign pension fund are exempted from FIRPTA and that foreign pension funds include both government funds established to provide retirement benefits and foreign-based multi-employer plans.
- Partnerships. The bill codifies a partnership’s ability to push out adjustments to multiple tiers of partners. NMHC/NAAstrongly supported such partnership push outs that the IRS authorized in proposed regulations released in December 2017.
A detailed review of all technical provisions can be found here.
National Flood Insurance Program
The measure also extends the NFIP through July 31, giving lawmakers an opportunity to work on a comprehensive reauthorization. NMHC/NAA have made the long-term extension of the NFIP a key policy goal.
The omnibus bill is widely expected to be the last major piece of legislation Congress will pass before the November midterm elections.
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- Senate Finance Chair Releases Legislation to Expand Housing Production Tax Credits
- HUD Releases Eviction Mitigation and Resident Support Resources
- NMHC-Led Coalition Makes the Case for Section 8 Reform