Summary: January 3, 2017

Transcription

1 In this week s Tax Credit Tuesday Pdcast, Michael J. Nvgradac, CPA, begins with the general sectin, where he talks abut current tax refrm and hw lwering the crprate tax rate culd mean a lss f up t $2.2 billin r mre in equity annually fr affrdable husing. In lw-incme husing tax credit news, he discusses hw Minnesta s state allcating agency has extended its applicatin deadlines as a respnse t the equity market disruptin caused by ptential tax refrm. Then, he shares hw the 2017 annual adjustment factrs fr certain Sectin 8 cntracts cmpare t thse f He clses ut with ur histric tax credit sectin, where he ll have encuraging news abut Oklahma s ppular state histric tax credit. Summaries f each tpic: 1. General News (5:01 9:20) Pages Lw-Incme Husing Tax Credits (9:21 13:58) Pages Histric Tax Credits (13:59 15:57) Page 6 Editrial material in this transcript is fr infrmatinal purpses nly and shuld nt be cnstrued therwise. Advice and interpretatin regarding tax credits r any ther material cvered in this transcript can nly be btained frm yur tax adviser. Nvgradac & Cmpany LLP, All rights reserved. Reprductin f this publicatin in whle r in part in any frm withut written permissin frm the publisher is prhibited by law. Fr reprint infrmatin, please send an t cpas@nvc.cm.

2 GENERAL NEWS Ptential Tax Refrm Effects n LIHTC In general news, the 115 th Cngress cnvenes tday. And lawmakers are preparing fr what they hpe will be the mst significant tax refrm in a generatin. Huse Republicans riginally planned t unveil draft legislative text fr tax refrm befre Inauguratin Day, Jan. 20, but they have since delayed such plans. Nw we expect the draft legislative text t be cmpleted smetime in the first quarter f the year. With the increasing likelihd f majr tax refrm in mind, I published a blg pst last week n what tax refrm culd mean fr ne f the mst imprtant affrdable husing finance prgrams in the cuntry: the lw-incme husing tax credit (LIHTC). Sme f yu may recall that Nvgradac & Cmpany published a reprt back in 2013 n hw tax refrm culd affect affrdable rental husing. Well, we ve nw updated thse calculatins t reflect current prpsals. Namely, we lk at hw the LIHTC equity market culd change if the crprate tax rate were t drp frm the current 35 percent rate t 28 percent, which President Barack Obama prpsed in his crprate tax refrm framewrk, 25 percent, which is the rate frmer Huse Ways and Means Cmmittee Chairman David Camp prpsed in his 2014 tax refrm bill, 20 percent, which is the rate Huse Republicans are targeting in their tax refrm blueprint, and Yes, we did als g as lw as 15 percent, which is what the Trump plan prpses. We fund that lwering the tp crprate tax rate frm 35 percent t 15 percent culd lwer investr equity pricing by as much as 17 cents r mre per tax credit dllar. This drp in pricing wuld substantially reduce the amunt f equity available t build and preserve affrdable rental husing. Ttal equity available culd be cut by as much as $2.2 billin r mre annually. In terms f husing prductin, this reduced equity culd result in as many as 16,000 r mre fewer affrdable rental hmes created r preserved each year. Thse numbers are used, r generated by using histric prductin data frm the Natinal Cuncil f State Husing Agencies. I shuld nte, these calculatins assumed that tax-exempt bnd financing fr affrdable husing was preserved. If such financing was nt preserved, then the lsses wuld be even greater. Our calculatins als cnsidered the effect f certain ther Huse tax refrm blueprint cncepts. One f thse cncepts is expensing tangible and intangible assets. Hwever, I shuld nte that under the Huse Republican blueprint, land cannt be expensed. The Huse tax refrm blue print als wuld limit interest expense n debt, such as that it can nly be deducted t the extent that there is interest incme. We als cnsidered that limitatin.

3 Nw in sme cases, these factrs culd have the ptential t ffset sme f the pricing reductins. The expensing, generally what increase IRR, and as such, generally what help ffset sme f the declines f pricing due t the lwer marginal crprate tax rate. Hwever, limiting expense deductins wuld have the ppsite effect by taking away sme deductins and having an adverse effect n interim rates returned. I shuld als nte it s unclear hw the interest f thse limitatins wuld apply t banking institutins. Nw there are bviusly many factrs that affect the pricing f investr equity cntributins t LIHTC prperty partnerships. That s why it s imprtant t keep plicymakers infrmed n hw certain tax refrm prpsals culd have large-scale effects n affrdable husing and ther issues. T that end, Nvgradac & Cmpany has frmed a Tax Refrm Wrking Grup t serve as an analytical tl and vice fr the tax credit cmmunity. If yu re interested in learning mre abut the wrking grup, and ptentially jining, please cntact my partner Dirk Wallace in ur Dver, Ohi, ffice. Als, yu can find ur updated tax refrm analysis n my Ntes frm Nvgradac blg.

4 LOW-INCOME HOUSING TAX CREDIT NEWS Minnesta LIHTC Applicatin Extensin In affrdable husing news, we ve discussed in the past hw different state allcating agencies are dealing with tax refrm uncertainty and its disruptin t the LIHTC equity investment market. As yu ve heard befre, sme investrs have taken a break t see what happens t marginal tax rates. Others are using tax credit adjuster language until prpsals are finalized. And s thers are chsing t invest at an assumed rate f 20 percent r 25 percent. Nw t accmmdate these changes, sme state allcating agencies are mderately pushing back applicatin deadlines and making ther changes. Last week, I talked abut Califrnia changing its readiness deadlines. Befre that, I discussed Wiscnsin changing its applicatin deadlines and Delaware prpsing adjusting its minimum pricing fr credits. Well, Minnesta recently annunced that it extended its applicatin deadline fr 2017 credits t Feb. 28, citing what it called, qute changing cnditins, end qute, in the LIHTC market. The delay is mdest it s abut fur weeks frm the previus deadline f Jan. 31. In Minnesta, the deadline t submit the intent t apply frm fr LIHTCs is Feb. 14 at 5 p.m., whereas the full applicatin must then be submitted, as I said earlier, by Feb. 28. T learn mre abut the shifting equity market, I invite yu t jin me at the Nvgradac Tax Credit Develpers Cnference in Miami this week. That s right, this week. It s Thursday and Friday, Jan There s still time t register. G t HAP Adjustment Factrs In HUD news, I have sme infrmatin n the 2017 annual adjustment factrs that HUD released fr the Sectin 8 Husing Assistance Payment prgram. The factrs are used t adjust the mnthly rents f units n the anniversary f HAP cntracts that are subject t the annual adjustment factr. Last week, I prmised that I d discuss hw the 2017 adjustment factrs cmpared t As was the case in 2016, all areas in the cuntry had a psitive adjustment factr meaning HAP rents will increase fr assistance cntracts subject t the annual adjustment factr. Hwever, in sme f the areas, the adjustment factrs, while higher, are still lwer in 2017 than they were in Which f curse meaning rents will grw, but at a lwer rate in 2017 than in Nw where cntract rents include the utility csts, the annual adjustment factrs fr 2017 were lwer than in 2016 fr the Midwest, Nrtheast, Suth and West regins. The Midwest increase was 1.3 percent, dwn frm 2.4 percent the year befre. The Nrtheast, the increase is 0.8 percent dwn frm 1.8 percent the year befre. The Suth has a 2.3 percent increase, dwn frm 3.5 percent the year befre. The West saw an increase f 2.5 percent, which is dwn frm 2.7 percent the year befre.

5 Nw where cntract rents exclude utility csts, tw f the fur regins saw an increase. The Midwest will see a 2.5 percent increase versus 1.5 percent the year befre, and the Suth will see a 1.7 percent increase versus 1.3 percent the year befre. Turning t the West, the West will stay cnstant at a 2.5 percent increase the same in 2017 as it was in The Suth did see a decrease, but it s still a large annual increase. There will be a 2.8 percent in 2017, whereas the year befre, their increase was slightly higher at 3.3 percent. S as yu culd hear, market rents are generally still rising, just nt as fast n an average rate as the year befre. Nw the increase in HAP rents will allw prperty wners t cllect mre revenue frm HUD. Hwever, I shuld als nte residents will largely be unaffected by the inflatin amunts since the residents will cntinue t pay 30 percent f their adjusted incme. If yu d like mre infrmatin r have questins abut calculating rents, please cntact my partner Thmas Stagg in ur Seattle ffice.

6 HISTORIC TAX CREDIT NEWS Oklahma HTC Reprt In histric tax credit (HTC) news, the Oklahma Incentive Evaluatin Cmmissin has recmmended that Oklahma retain its state HTC, but with an annual cap. This recmmendatin was part f the cmmissin s 2016 Tax Incentive Evaluatin Reprt. The reprt surveyed 11 state tax incentives, including Oklahma s state HTC prgram. Oklahma is ne f 12 states that d nt have an verall annual prgram limit. The reprt said that adding a prgram cap wuld ensure sme measure f future budget predictability. Once a cap is established, the reprt recmmends that prjects be accepted n a firstcme-first-served basis. The reprt did find that the 20 percent state tax credit prgram has been highly successful in rehabilitating histric structures acrss Oklahma. Since 2005, when the state first allwed applicants t apply fr state and federal credits simultaneusly, the average number f annual histric rehabilitatin prjects has quadrupled. Ttal develpment investments have increased frm $1 millin in 2005 t nearly $86 millin in The prgram has had very psitive effects n prperty tax values, business attractin, ppulatin grwth and emplyment. Nw I shuld nte Oklahma is facing a budget hle f nearly $900 millin in fiscal year Therefre, the state legislature will be lking fr areas where it can make pssible cuts. That s why the fact that the cmmissin recmmends keeping the state HTC is s imprtant. T read the reprt, g t