Expertise Beyond the Numbers

Stimulus Deal Sets 4% Floor Rate for Low-Income Housing Tax Credit Projects

With all the trials and tribulations that 2020 has brought to the country and the world, the future of the Affordable Housing industry is looking a little brighter as we enter 2021.

The industry has long sought a minimum 4% credit rate on low-income housing tax credit (‘LIHTC’) projects financed with tax-exempt private activity bonds. On December 27, 2020, this issue was finally addressed when President Trump signed into law the Consolidated Appropriations Act, passed by Congress on December 21, 2020. One of the provisions included in this Act sets forth an amendment to Section 42(b) of the Internal Revenue Code instituting a 4% credit floor for LIHTC projects, new or existing, financed with tax-exempt bonds and receiving an allocation after December 31, 2020.

The minimum 4% credit comes on the heels of the industry experiencing tax-exempt bond rates at record lows. Tax-exempt LIHTC projects reaching completion in December 2020 are subject to an applicable rate of 3.09%, down from an average rate of 3.25% in 2019. This decrease has had negative implications for many LIHTC projects.

The lack of safe and affordable housing in this country was already considered a crisis before COVID-19, and the pandemic has only further illuminated this dire need. This new legislation will undoubtedly incentivize the development of affordable units across the country. Projects that otherwise would not be possible, can now move forward thanks to the minimum credit rate.

The Act also extends the New Market Tax Credit program an additional five years, provides billions of dollars in rental assistance, and extends the moratorium on evictions to January 31, 2021.

If you have any questions about how this will impact you and would like to speak with a member of SC&H’s Affordable Housing Real Estate Practice, please reach out to us today.