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The linked materials and the session recording provide steps you can take to benefit from this new federal tax program, including: · Establishing and qualifying an Opportunity Fund · Investing gains into Opportunity Funds · Obtaining the maximum benefit of investing in Opportunity Funds · Structuring Opportunity Fund investments · Locating designated Opportunity Zones · Positioning your business or property to qualify as eligible for investment capital from an Opportunity Fund · Combining the benefits of an Opportunity Zone with other federal tax programs, such as Low Income Housing Tax Credits (LIHTC), Historic Tax Credits, and New Markets Tax Credits. Should you have a project that you think could benefit from Opportunity Zones investments or are seeking ways to facilitate investments, please reach out to members of the Ballard Spahr team for guidance and help brainstorming around issues and questions. |
Tax Reform Actualized and the Impact on Affordable Housing and Community Development
As we know, the President has signed what was originally titled Tax Cuts and Jobs Act, the most significant overhaul to the U.S. Tax Code since 1986. The President signed the Act into law after the first of the year in order to avoid some automatic spending cuts.
In its final form, this Tax Code overhaul retains private activity bonds and the the low-income housing tax credit. However, according to A Call To Invest in Our Neighborhoods (ACTION) Campaign, the amendment of other critical provisions of the Tax Code, especially, the lowering of the corporate tax rate from 35 percent to 21 percent and the creation of a base erosion and anti-abuse tax, present concern for affordable housing, as these provisions can impact an investor’s tax credit appetite. In an analysis performed by Novogradac and Company, the final version of the bill “would reduce the future supply of affordable rental housing by nearly 235,000 homes over 10 years.” Further, it is anticipated that other changes to the Tax Code, such as those relating to bonus depreciation, depreciation, and interest expense limitations, will impact equity pricing.
The legislation also retains the new market tax credit, with no change to its expiration which is after the 2019 allocation. The 20% historic tax credit was also retained, but with significant modification, including claiming the credit ratably over 5 years.
Ballard Spahr’s Tax Group is also following the legislative developments of other provisions of the bill. Late yesterday, the Tax Group issued a thoughtful analysis of the final bill.
Please use our Tax Reform Alert Center as a resource to find more information on the bill and/or reach out to us directly.
Tax Reform – Proposed Legislation Protecting Affordable Housing
After legislation to repeal the Affordable Care Act was pulled from the House floor last Friday, news headlines across the country began reporting that tax reform is next on the Trump Administration’s agenda. As noted in our prior blog post, tax reform that changes the corporate tax rate, the tax-exempt bonds program and the tax-credit programs will have significant impacts on the production of the affordable housing across the country.
In an effort to protect affordable housing programs, legislators have introduced amendments to the Internal Revenue Code (“IRC”) that either (1) create savings to be reinvested in affordable housing programs or (2) expand the availability of housing tax credits and fix related technical issues.
The following bills were introduced in the past 60 days –
- The Affordable Housing Credit Improvement Act of 2017 (S. 548) (the “Cantwell-Hatch bill”). According to The Affordable Housing Tax Credit Coalition, the bill builds upon prior bills (S. 2962 and S. 3237), also introduced by Sentor Maria Cantwell (D) and Senator Orrin Hatch (R), and includes “a new provision addressing planned foreclosures, a provision raising the cap to 30 percent from 20 percent on Difficult to Develop Areas (DDAs), additional criteria for community revitalization plans, a provision which codifies, rather than leaving up to Treasury regulations, the prohibition against any state QAP from including local approval or local contribution requirements, and other technical changes.” A section by section summary can be found here.
- Affordable Housing Credit Improvement Act of 2017 (H.R. 1661). The purpose of the bill, as reported in a press release issued by co-sponsor Representative Pat Tiberi (R), is to “make the financing of affordable housing more predictable and streamlined, facilitate housing credit development in challenging markets like rural and Native American communities, increase the housing credit’s ability to serve extremely low-income tenants, and support the preservation of existing affordable housing.” The bill is co-sponsored by Representative Richard Neal (D). A section by section summary can be found here.
- Common Sense Housing Investment Act of 2017 (H.R.948). The goal of the legislation, introduced by Representative Keith Ellison (D), is to expand the mortgage interest deduction to lower income homeowners and reinvest an estimated $241 billion in savings over 10 years into affordable housing. More information on the bill can be found here.
Bi-partisan support for these bills, especially S.548 and H.R. 1661, suggest that tax reform protecting housing tax credits is good policy. Monitoring the evolution of these bills; the President’s plan for tax reform and the industry’s response to anticipated changes in the IRC will be telling of the future affordable housing programs, especially those authorized under the IRC.
Housing Plus welcomes housing attorney Maia Shanklin Roberts to the blogging team
We are excited that Maia Shanklin Roberts has joined Ballard Spahr LLP and our Housing Plus team. Maia’s background is in community development. She worked with the Maryland Department of Housing and Community Development and the Citywide Coordinating Committee on Youth Violence Prevention in Washington, D.C.
Maia is looking forward to bringing her keen insights about community development to blog readers. She has been involved in numerous affordable housing, adaptive reuse, and mixed-use transactions involving more than $800 million in federal, state, historic, and energy tax credit syndications, tax-exempt private activity bonds, and other public financing.
Please join us in welcoming Maia to the firm and our Housing Plus team.
Senate passes Tax Extender Package at 11th hour
The Senate passed the “Tax Increase Prevention Act of 2014” (H.R. 5771) on Tuesday night just before Congress adjourned for 2014. As Molly Bryson described in her December 5, 2014 post following the House’s passage of the bill, the tax extenders package provides a one-year retroactive extension of certain tax provisions that expired at the end of 2013. Some specific extensions that are of interest to the tax credit community include the following:
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extension of 9% tax credit floor for low-income housing tax credit allocations made prior to January 1, 2015
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extension of $3.5 billion in allocating authority for new markets tax credits for the calendar year 2014 round
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extension of the production tax credit for wind and certain other renewable energy projects that begin construction in 2014
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extension of 50% bonus depreciation for certain new equipment placed in service in 2014 (2015 for certain longer period production property)
The extent to which this legislation is beneficial really depends on the type of tax incentive involved. This is a boon for the new markets tax credit community, because it guarantees another full $3.5 billion round of funding. The benefit to renewable energy projects is less clear, as eligibility for the production tax credit is subject to a year-end construction commencement deadline. It’s also not clear how many affordable housing projects will really benefit from a 9% credit floor this late in the tax credit allocation season. In any event, January 1, 2015, when these tax extenders expire, is going to feel a lot like January 1, 2014. It will be interesting to see if this two-week extenders package becomes the poster child for the need for permanent tax reform.
National Trust for Historic Preservation and Urban Land Institute initiative studies and promotes building reuse in America’s cities
Recognizing the environmental, economic and community benefits of reusing vacant and blighted property, The National Trust for Historic Preservation (NTHP) and the Urban Land Institute (ULI) created the Partnership for Building Reuse to bring together local partners and stakeholders to identify opportunities and address challenges related to the reuse of buildings in America’s cities. This fall, the Partnership for Building Reuse issued its findings from studies performed in Philadelphia (“Retrofitting Philadelphia”) and Baltimore (“Building on Baltimore’s History”). Michael Sklaroff, former Chair of Ballard Spahr’s Real Estate Department, co-chaired the Philadelphia effort, and Jon Laria, the Managing Partner of the firm’s Baltimore office, co-chaired the Baltimore project.
NTHP and ULI created the Partnership for Building Reuse in 2012 with Los Angeles serving as the pilot city. Baltimore and Philadelphia joined the Partnership in December, 2013 and Chicago and Louisville are expected to join in 2015. A national summit will bring together urban leaders from across the country, including practitioners from the five cities, to explore lessons learned and establish a common policy agenda, the results of which will be shared in a summary publication.
As part of this effort, NTHP’s Preservation Green Lab conducted research into the connections between the vitality of city neighborhoods and the character of the city’s existing building stock. The Green Lab’s findings show that older, smaller buildings contribute in key ways to the vitality of Baltimore and Philadelphia. For example:
- Older neighborhoods support the local economy and promote creative industries
- Young people flock to old buildings
- Old buildings attract good restaurants
The Partnership identified major obstacles to building reuse — including market, financial, technical, and regulatory barriers. These include:
- Weak market demand and low rents
- Acute social and economic challenges in many neighborhoods
- Conflicts between reuse of existing buildings and zoning, energy and building code requirements, especially for smaller projects
- Lack of incentives or difficulty in using tax credits and other incentives, especially for smaller projects and affordable housing
- High construction costs and difficulty adapting certain building types for modern needs
With these and other barriers in mind, the reports recommend key strategies to optimize building reuse in Baltimore and Philadelphia. In the coming months, NTHP and ULI will work with local partners and city leaders to advance the reports’ recommendations and bring the benefits of building reuse to more Baltimore and Philadelphia neighborhoods and residents. The goal of the national summit will be to further refine the recommendations from Baltimore and Philadelphia, along with those from Los Angeles, Chicago and Louisville, and to explore the applicability of the recommendations to other American cities.
We look forward to learning more from the Partnership for Building Reuse in the coming months and years. For more information on the Partnership for Building Reuse, please visit http://preservationnation.org/greenlab.