Obama's Budget Proposal Offers LIHTC Changes

On April 10, President Obama released his proposed budget for the 2014 fiscal year. His proposals affecting low-income housing tax credits (LIHTCs) can be found in the "Reserve for Revenue-Neutral Business Tax Reform" Section of the proposed budget. Here are the changes proposed to the rules governing LIHTCs:

• States would be empowered to convert some private-activity-bond volume cap into authority to allocate additional LIHTCs. This proposal is designed to give each state more flexibility to address its highest affordable housing priorities.
• To serve households in greater need and to provide incentives for creating mixed-income housing, the administration proposes to allow projects to comply with an income-averaging rule under which the income limits for at least 40 percent of the units in a project could average to not greater than 60 percent of area median income (AMI). None of these units could be occupied by an individual with income greater than 80 percent of AMI.
• The administration proposes to change the formulas that produce the rates for the 70-percent-present-value credits and for those 30-percent-present-value credits that are subject to the LIHTC allocation cap. In lieu of the 9-percent floor that’s scheduled to sunset for allocations made after 2013, the revised formulas would produce annual allocated-credit rates that are somewhat higher than the rates that today’s present-value formulas produce and would result in a more consistent benefit over the interest rate spectrum than under current law. The proposal would apply to allocations made after Dec. 31, 2013.
• The administration proposes to add preservation of federally assisted affordable housing to the selection criteria for LIHTC allocation. This factor would join the 10 criteria that state housing agencies must include in the qualified allocation plans that they follow in deciding which applicants receive LIHTCs.
• To increase the demand for LIHTCs, the administration proposes to make them beneficial to real estate investment trusts (REITs). If a REIT is entitled to LIHTCs for a taxable year, the REIT would be able to designate as tax exempt some of the dividends that it distributes to its shareholders.

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