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Sept. 22 — Construction and property management companies as well as local businesses would benefit from a housing tax credit for middle-income families under a proposal from Senate Finance Committee ranking member Ron Wyden (D-Ore.), two lawyers told Bloomberg BNA.
State authorities would allocate the middle-income housing tax credits to developers for new construction projects or renovations—a model mirroring the existing low-income housing tax credit. To be eligible for the credit, at least 60 percent of a property's units would need to be occupied by individuals or families with incomes between 60 and 100 percent of area median gross income (AMGI), according to the draft legislation, released Sept. 22.
“There is obviously a need to provide affordable housing to the middle-income—firefighters, teachers and so on,” said Michael I. Sanders, the lead partner of Blank Rome LLP's tax group. “It elevates the community, it generates business, it creates jobs.”
Wyden declined to comment further on the proposal as he left a news conference on Capitol Hill Sept. 22. Ryan James Carey, Wyden's senior adviser for policy communication, said it would “absolutely” be a priority for him if he becomes chairman of the committee again next year. The proposal is the latest in a series of draft bills floated in recent months to serve as markers ahead of that possibility. Previous plans tackled high-value retirement accounts, derivatives, depreciation and cross-border tax issues (175 DTR G-1, 9/9/16).
The credit would make the biggest splash in urban centers like New York City, San Francisco and Portland, Ore., but could also boost quality housing in rural areas, said Michael J. Novogradac, managing partner of Novogradac & Co.
Tenants' rent in qualifying properties can't exceed 30 percent of AMGI, a figure that varies by city, according to the draft legislation. A family of four in Portland with incomes between 60 and 100 percent of AGMI would earn between $44,000 and $73,000, according to a Sept. 22 release.
“Many people across Oregon know what it’s like to see rents climb skyward beyond their ability to pay. When every penny goes into the rent check on the first of the month, you can’t even dream of saving for a down payment on a first home, paying for college or building a nest egg for retirement,” Wyden said in the release.
The maximum credit for each project is 50 percent of the present value of qualified basis, and the credits are paid out equally over a 15-year period, according to the draft legislation. Thus, the credit will be attractive to developers who may otherwise not be able to afford the project, Sanders said.
It will also be a boon to property management companies, because keeping the buildings in compliance for that timeframe requires “a very technical, niche sort of management practice,” said Douglas Clapp, a partner at Holland & Knight LLP.
“That world gets expanded. Because there are more units to manage, you need more people to manage them,” Clapp said, adding construction companies would also benefit.
The credit would serve a wider population band than the low-income credit, which caps the income for those living in qualifying properties at 60 percent.
A state's unused funds from the middle-income credit would be funneled into the existing funding pool for the low-income credit, according to the draft legislation. Wyden is a cosponsor of a bill (S. 2962) introduced May 19 by Sen. Maria Cantwell (D-Wash.) and Senate Finance Committee Chairman Orrin Hatch (R-Utah) to expand the low-income housing tax credit by 50 percent.
“It was nice to see him saying we want to provide more funding for workforce housing and also recognize we have to add funding to the low-income housing tax credit,” Novogradac said.
Still, critics of the proposal may say it will hurt funding for the low-income housing tax credit, the lawyers said.
“Obviously there aren't an unlimited amount of funds to pay for these things. That’s the biggest impediment he has,” Clapp said. “He has to show why the limited amount of budgeted funds that exist should go to this program versus a different program.”
Comments are requested on how to coordinate the low-income housing tax credit and Wyden's proposal, according to the draft summary.
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Text of the discussion draft of Sen. Wyden's proposal is in TaxCore.
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