Impact of Consolidated Appropriations Act, 2021 on LIHTC Projects

Congress recently passed the Consolidated Appropriations Act, 2021, which comprises 2,100+ pages of text, with a division dedicated to Taxpayer Certainty and Disaster Tax Relief. Included within that division is one small section that is expected to have an enormously positive impact on LIHTC developments.

The provisions of this text establish a minimum tax credit percentage and are as follows:

• Subsection (b) of IRC Section 42 is amended to provide an applicable credit percentage for federally subsidized buildings of not less than 4%
• The 30% present value credit now joins its big brother, the 70% present value credit, to establish a credit floor
• The 4% tax credit percentage floor provision is effective for federally-subsidized buildings as follows:
  • If financed with tax-exempt bonds:
    • Placed in service by the taxpayer after December 31, 2020, and
    • Received a tax credit allocation after December 31, 2020, and
    • Tax-exempt bonds are issued after December 31, 2020
  • If not financed with tax-exempt bonds:
    • Placed in service by the taxpayer after December 31, 2020, and
    • Received a tax credit allocation after December 31, 2020

With the 30% present value tax credit percentage hitting all-time lows during 2020, this floor provision can only sweeten the pot for tax credit investors, provide more capital to finance additional affordable housing units, and help shorten the housing gap.