A tax deal that has been proposed by lawmakers in Washington, D.C. has the potential to generate more than 200,000 new homes for low-income families. This initiative aims to boost the low-income housing tax credit, which encourages developers to construct affordable-housing units. The proposal is a part of the comprehensive Tax Relief for American Families and Workers Act of 2024.
This bipartisan plan, introduced by Sen. Ron Wyden (Democrat, Oregon) and Rep. Jason Smith (Republican, Missouri), who respectively serve as the Chairman of the Senate Finance Committee and the Chairman of the House Ways and Means Committee, also encompasses provisions to expand access to the child tax credit and provide tax breaks to businesses.
Sen. Ron Wyden expressed his belief in the proposal’s significance, stating, “This policy arrives at a critical time when many individuals in Oregon and throughout the United States are grappling with escalating rental costs and soaring home prices.”
While the creation of 200,000 new housing units represents an important step forward, Sarah Saadian, the Senior Vice President of Public Policy and Field Organizing at the National Low-Income Housing Coalition, emphasized that “a considerable number of rental homes built using the existing tax credit remain unaffordable for households with extremely low incomes.”
Despite concerns about the affordability of these rental properties, Saadian acknowledged that the resources allocated by Congress for this initiative may fall short in adequately addressing the needs of extremely low-income renters, particularly those who are homeless or at risk of homelessness.
The Low-Income Housing Tax Credit (LIHTC): An Incentive for Affordable Rental Housing
The Low-Income Housing Tax Credit (LIHTC) is a tax incentive that aims to subsidize the cost of construction or rehabilitation of affordable rental housing for low- and moderate-income tenants. This program, introduced in 1986, has been instrumental in creating more than 2 million units of affordable housing over nearly four decades, according to the Tax Policy Center. In 2019 alone, the LIHTC helped finance between 50,000 and 60,000 new housing units, as estimated by the Urban Institute.
How does it work?
Under the LIHTC, the federal government issues tax credits to states, which then distribute them to private developers. Equity investors can invest in a property and receive tax credits in return. Once a housing project becomes available to tenants, both property developers and investors can claim the LIHTC over a 10-year period, explains the Tax Policy Center.
Proposed Enhancements
A recent proposal put forth by lawmakers aims to further support affordable-housing projects by allowing states to allocate a higher percentage of tax credits. Currently capped at 9% between 2018 and 2021, the new tax framework would increase this ceiling to 12.5% from 2023 to 2025. This change would provide more resources for developers seeking to build affordable housing.
Additionally, the proposal seeks to reduce the financing requirements for builders, particularly in relation to bonds.
Conclusion
The Low-Income Housing Tax Credit (LIHTC) has been a crucial tool in addressing the housing needs of low- and moderate-income individuals and families. The proposed enhancements, if implemented, could provide even greater support for affordable-housing projects across the country. While the goal is to pass the bipartisan tax deal by January 29, the timeline remains uncertain.
Related: Tax deal unveiled in Congress. Here’s how U.S. businesses and families could benefit.
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