Congress’s Bipartisan Tax Proposal includes LIHTC Enhancements

On January 16th, Congressional leaders introduced a bipartisan tax proposal, the Tax Relief for American Families and Workers Act of 2024. The proposal includes an expansion of the Child Tax Credit, other business-related policies, and certain provisions of the Low-Income Housing Tax Credit (LIHTC). The tax package, valued at around $80 billion, reinstates a 12.5% increase in the Low-Income Housing Tax Credit, a boost that had ended in 2021. It also promotes the use of private activity bonds to fund affordable housing.

From 2018 to 2021, the ceiling for the 9% LIHTC was raised by 12.5%, which allowed states to provide more credits for affordable housing initiatives. This 12.5% increase is being brought back for the years 2023 to 2025, effective for tax years starting after December 31, 2022. Additionally, the legislation reduces the bond test threshold for 4% LIHTC bond projects from 50% to 30%. This change is expected to enable more housing projects to be developed and to reduce the overall costs.

For the 4% LIHTC transactions, the legislation would reduce the minimum amount of volume-cap tax-exempt bonds required to receive 4% LIHTC from 50% to 30% (“30% Test”). This change would apply to developments financed with tax-exempt bonds with an issue date before 2026 if the building is placed in service after December 31, 2023. There is a transition rule for buildings that already have a bond allocation.

The Tax bill has passed the U.S. House of Representatives and is yet to be taken up by the U.S. Senate.