How the New Federal Tax Law and the New York State Budget Affect Affordable Housing: Heveron & Company CPAs

The new tax law was not a direct hit on affordable housing, affordable housing tax credits remain intact, and interest on affordable housing private activity bonds continue to be nontaxable, but some say that it will have a significant indirect adverse affect, because reduced corporate tax rates decrease incentive to purchase affordable housing tax credits.

State governments award credits to affordable housing developers who sell them to taxpayers in exchange for equity investments in affordable housing.

The taxpayers who buy these credits are mostly corporations, particularly banks who can satisfy Community Reinvestment Act obligations by acquiring these credits. But, the new tax law cuts the top corporate rate from 35% to 21% which decreases incentive to acquire these tax credits. However, while corporate tax rates are significantly lower, a dollar of affordable housing tax credit still eliminates a dollar of federal tax, so we will need to wait and see how the appetite for these affordable housing credits changes under the new federal tax laws.

The demand for affordable housing continues to increase, and the benefit of affordable housing to communities is well-documented. A report by Harvard’s Joint Center for Housing Studies finds that the number of renters has surged to about 1 million additional renters per year since 2010.

Although it is not final, the New York State budget for the year beginning April 1, 2018 contains a combination of good and bad news for affordable housing.

First, the governor’s proposal to defer the use of tax credits (when they exceed $2 million in the aggregate) does apply to Low Income Housing Credits, the Green Building Credit, the Brownfield Redevelopment Credit, and the Historic Properties Credit.

The budget does include $44.2 million for the Low Income Housing Trust Fund Program, $26 million for the Affordable Housing Corporation, and it continues budgets for the Neighborhood Preservation Program and the Rural Reservation Program.