Wind Mills and Solar PanelsAs in prior years, the Obama administration’s FY 2016 budget includes a number of impactful, and generally positive, tax credit proposals. With respect to the Low-Income Housing Tax Credit (LIHTC), the budget retains many of last year’s proposed modifications, and adds a new proposal to remove the population cap for Qualified Census Tract designations. Specifically, the budget would modify the LIHTC program by:

  • authorizing States to convert up to 18% of their private activity bond volume cap into additional low-income housing tax credit (LIHTC) allocating authority (last year’s proposal limited the percentage to 8%);
  • allowing LIHTC development owners’ to elect a third possible low-income set aside in which at least 40% of a project’s units must be occupied by tenants whose incomes average no more than 60% of area media gross income (with the caveat that no low-income unit could be occupied by a tenant with income over 80% of AMI);
  • increasing the discount rate used in calculating LIHTCs for non-bond financed projects;
  • adding preservation of federally assisted affordable housing to Qualified Allocation Plan criteria;
  • removing the population cap for Qualified Census Tract designations (new proposal for 2016); and
  • implementing a requirement that LIHTC-supported housing protect victims of domestic abuse.

Among other non-LIHTC highlights, the budget would permanently extend the New Markets Tax Credit (NMTC) with a $5 billion annual allocation, and permanently extend both the renewable energy production tax credit (PTC) and energy investment tax credit (ITC). The ITC would be extended at its current 30% credit level (which is set to expire for properties placed in service after December 31, 2016), and the election to claim ITCs in lieu of PTCs for certain qualified facilities would be made permanent.

The U.S. Department of the Treasury’s General Explanation of the Administration’s Fiscal Year 2016 Revenue Proposals (the “Greenbook”) can be found here.

Although the Obama administration’s tax proposals generally tend not to get much traction with lawmakers, the FY 2016 budget is significant in that it adds another voice to the tax reform debate, and signals Presidential support for the NMTC and renewable energy tax credit programs.