The Internal Revenue Service (IRS) on March 5 published Revenue Procedure 2018-18 (contained within Internal Revenue Bulletin 2018-10), modifying 2018 cost-of-living adjustments for various programs, including the Low Income Housing Tax Credit (Housing Credit) and private activity bonds (PAB). IRS had previously published 2018 Housing Credit and PAB volume cap authority amounts in Rev. Proc 2017-58, however, changes to the inflation adjustment enacted in the tax reform legislation Congress passed in December 2017 required IRS to revise both the Credit and PAB volume caps, as well as make adjustments in various other programs.
While the change does not impact the 2018 per capita determination for either the Housing Credit or PAB volume caps (which remain at $2.40 per capita for the Housing Credit and $105 per capita for PABs), the 2018 small state minimums are lower under both programs than IRS expected when it published Rev. Proc. 2017-58 in October of 2017. The 2018 small state minimum for the Housing Credit volume cap went from $2,765,000 to $2,760,000. The 2018 small state minimum for the PAB volume cap went from $311,375,000 to $310,710,000.
The 2017 tax reform bill bases all future annual Housing Credit and PAB authority on the Chained Consumer Price Index (chained CPI) rather than Consumer Price Index for All Urban Consumers (CPI-U), which had been the previous inflation determinant. Chained CPI is a less generous inflation factor. Novogradac & Company estimated that the decrease in inflation adjustments to the Housing Credit and PAB authority will lead to a loss of between 18,700 and 19,900 affordable rental homes over 10 years. This is in addition to the loss of approximately 200,500 to 212,400 rental homes over 10 years that Novogradac estimates indicate will result from lower Housing Credit pricing due to the lower corporate tax rate.