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Protecting Americans from Tax Hikes of 2015

Posted on: February 3rd, 2016 by Christa Landram No Comments

On December 18, 2015, a bill titled “Protecting Americans from Tax Hikes of 2015” was passed. One aspect of this bill makes permanent tax provisions, including setting the minimum tax credit rate for projects that receive LIHTC’s. A section of this bill extends the minimum tax credit rate at a fixed rate of 9% for new construction and substantial rehab. This will positively affect the total annual credit received over 1-10 years.

This extension keeps Low Income Housing Tax Credit (LIHTC) projects from receiving floating tax credits. For example, let’s calculate an annual credit assuming the tax rate percentage is 7.49% and a building’s eligible basis is $2,000,000 with a 75% applicable fraction.

$2,000,000 (eligible basis) x 75% (applicable fraction) = $1,500,000 (qualified basis)
$1,500,000 x 7.49% = $112,350 (annual credit)
Now, let’s look at an example where the tax rate is 9% using the same property information.
$2,000,000 (eligible basis) x 75% (applicable fraction) = $1,500,000 (qualified basis)
$1,500,000 x 9% = $135,000 (annual credit)

So, just over one year, that is a $22,650 difference. Over 10 years that comes to $226,500.

Just looking at that one calculation it is clear that this is a significant change for all owners of affordable housing projects. With a growing rate of homelessness in many counties, this is a huge victory for the affordable housing industry as this makes deals more financially feasible for owners across the nation.

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