4% LIHTC Fix Not Fixed

In the midst of impeachment drama Congress managed to avert a government shutdown and passed a 2020 spending bill. Little known was an effort to include a fixed 4% LIHTC rate in the spending bill, which apparently fell short at the last minute. It would have been a transformative change that would make 4% LIHTC deals more viable, particularly for new construction or substantial rehabilition. Below is a quick primer:

There are two types of LIHTCs: the “9% credit” and the “4% credit”. The rates roughly refer to the percentage of depreciable basis (cost) that an annual LIHTC can fund and the annual LIHTC is received by the taxpayer for 10 years. In simple terms the 9% credit translates to a maximum of about 90% of the project’s cost (cost x 9% LIHTC x 10 years) and the 4% credit translates to about 40% of the project’s cost (cost x 4% LIHTC x 10 years). Originally, both rates floated monthly based on a complicated calculation that functioned to reduce the actual credit rate to below 9% and 4%. Congress “fixed” the 9% credit at 9% in 2008 amidst the Great Recession to prop up the LIHTC market. The 4% credit remains unfixed and is currently set at 3.2%, meaning that the 40% of cost maximum is really about 32%.

The fixed 4% LIHTC has been an affordable housing priority for many years and it’s too bad the effort fell short in the last minute. We use the 4% LIHTC for every renovation or new construction project we do and a fixed 4% credit would have dramatically improved the budgets for every one.

For more information:

https://www.housingfinance.com/policy-legislation/lihtc-provisions-left-out-of-tax-deal_o