The final version of the Tax Cuts and Jobs Act was passed on Wednesday, December 20th, by both the House and Senate, marking the most comprehensive tax reform since 1986, with major implications to the tax credit and affordable housing industries in the original proposed legislation. Winthrop & Weinstine partnered with former United States Senator and Winthrop & Weinstine alumni Norm Coleman on behalf of our firm, our clients and the industry as a whole, to advance the cause of tax credits in addition to participating in the wider industry effort of education and community outreach. Facing the possibility of radical change, the tax credit community worked tirelessly to educate legislators about the importance of the credit programs and was one of only a few industries to score several significant victories for its continued existence.
The top headline from the bill, which President Trump is expected to sign after January 1, 2018, is that the corporate tax rate has been reduced from 35% to 21%. Earlier this year, the low-income housing tax credit market had coalesced around a 25% corporate tax rate. The reduced tax rate will negatively impact credit pricing, the extent of which is still unknown.
Key Takeaways
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Low Income Housing Tax Credits: Preserved.
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Both the 9% and 4% LIHTC are retained.
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No adjustment to basis boost in DDA’s and QCT’s.
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Private Activity Bonds: Despite being repealed in the original House bill, PABs are retained.
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Non-shareholder capital contributions for grants from governmental entities are eliminated.
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Historic Tax Credits: Preserved but modified;
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HTC may be claimed pro-rata over a five year period of time, subject to the transition rules that will be put in place.
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New Markets Tax Credits: Preserved, with 2018 and 2019 annual allocation rounds at $3.5 billion each.
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Renewable Energy: The investment tax credit (ITC) and production tax credit (PTC) are preserved with no changes.
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Expensing: 100% bonus depreciation for projects placed in service before January 1, 2023, with potential limits on using in real estate projects.
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Partnership Technical Termination rules: Repealed.
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Tax rate is reduced for certain partnership income.
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Real estate businesses can elect out of limitations on interest deductibility, with caveats.
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1031 Exchanges: Preserved.
