Tax Cuts and Jobs Act Conference Report

Friday afternoon, the conference committee on the Tax Cuts and Jobs Act (HR 1) reported the reconciled bill to each of the House and Senate for final action in each chamber. Assuming it passes both the House and Senate, it will go to the president for signature and enactment. At this writing, it appears highly likely the bill has sufficient votes in each chamber. It is virtually certain that the president will sign it, if passed by the Congress. The plan is that the House and Senate will vote on the conference report by Tuesday or Wednesday and send it to the president shortly thereafter.

Here are the most salient provisions in the conference report, pertaining to the low-income housing tax credit, private activity bonds, and certain other credits. Please understand that this is intended only as a brief summary of the following provisions. We expect to do a more thorough analysis over the next few days. For those who wish to review the entire legislative language and conference report, here is a link:

http://docs.house.gov/billsthisweek/20171218/CRPT-115HRPT-466.pdf

Private Activity Bonds

The tax exemption on private activity bonds is preserved. This was our number 1 legislative goal after the House bill proposed to eliminate PABs altogether. The Senate made no changes to PABs, insofar as they relate to housing and the conference report follows the Senate on this.

Low-Income Housing Tax Credit Provisions

The low-income housing tax credit is preserved, as was the case under both bills. There are no amendments to Section 42 contained in the conference report. The only provisions in either bill that amended Section 42 was the amendment proposed by Senator Roberts, and it was dropped from the final bill. That amendment would have affected the general public use provisions in favor of veterans and at the expense of artists’ housing and would have provided a mandatory basis boost for rural projects and reduced the 130% basis boost to 125% as a revenue offset. We are pleased that this amendment was dropped.

Base Erosion Anti-Abuse Tax (BEAT)

The conference report estalishes the new BEAT, a minimum tax imposed on foreign corporations doing business in the US and domestic corporations with substantial foreign operations, first introduced as part of the Senate bill. A number of LIHTC investors had expressed concerns about the Senate passed measure because it would not allow LIHTC (or other credits except for research and development credits) to be used against the BEAT computation. Under the conference report, 80% of LIHTC as well as and Renewable Energy production and investment tax credits (but apparently not historic or new markets credits) would escape the effect of the BEAT. This appears to be phased in beginning in 2018.

New Markets Tax Credits

There was no change to the New Markets Tax Credit program in the conference report.

Historic Tax Credits

The conference report adopted the provision in the Senate bill that maintains the historic rehabilitation credit for certfied rehabilitations but makes the credit allowable over a 5 year period. The conference report also eliminates the 10% credit for pre-1936 buildings that are not certified historic structures. This change is effective for qualified rehabilitation expenditures (QREs) incurred after December 31, 2017 but under a transition rule, in the case of QREs incurred with respect to any building owned or leased by the taxpayer during the entire period after December 31, 2017 with respect to which the 24-month rehabilitation period (or the 60-month period for phased rehabs) begins not later than 180 days after enactment, the new rules will only apply to QREs incurred after the end of that 24-month (or 60-month) period. There are a number of questions concerning this transition rule, including whether the “taxpayer” is treated as the entity acquiring the building or the actual end user (i.e., the investor) of the credit.

Corporate Rate

The corporate tax rate is set at 21% under the conference report, effective January 1, 2018.

Corporate Alternative Minimum Tax (AMT

The corporate AMT is repealed effective January 1, 2018.

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