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Federal Tax Policy Improve the Low Income Housing Tax Credit

The acute need for affordable rental home options is worsening.
MORTGAGE INTEREST
More than one in four renters spend over half of their monthly
DEDUCTION
income on rent. Congress can maintain the Low Income Housing
The mortgage interest deduction Tax Credit (LIHTC), and improve its effectiveness by co-sponsoring
(MID) has been part of the tax code S. 548 or H.R. 1661, the Affordable Housing Credit Improvement Act.
since its inception in 1913. Home This legislation contains numerous provisions. Among others, it
owners may deduct interest on up would establish a permanent minimum 4% credit floor for the
to $1 million of acquisition mortgage acquisition and preservation of existing properties. This would
provide more flexibility in financing projects, making more types of
debt and up to $100,000 of home
2017 NAHB equity loan debt. . properties financially feasible.
There are many misconceptions regarding this deduction and
Legislative who benefits from it. The deduction is a middle-class tax break, Softwood Lumber
and is particularly beneficial to younger households and larger
families. Seventy percent of the benefits are claimed by families
America’s residential construction industry needs a stable and
earning less than $250,000. The vast majority of home owners
affordable supply of lumber. U.S. domestic production is not
Conference with a mortgage – historically 70 percent claim the deduction in sufficient to meet demand. NAHB is working with the Forrest
any given year – benefit from the MID.
Service and the Bureau of Land Management to clear the
SECOND HOMES regulatory hurdles that constrain domestic lumber production.
Annual domestic production has not met demand even once
The National Association of Home during the last 50 years. The lumber supply problem is made
Builders Represents the home builders, remodelers, The mortgage interest deduction for a second home is often worse by the U.S. Commerce Department’s recent decision to
misunderstood. In fact, many home owners have owned a impose a 20% tariff on Canadian softwood lumber that will make
and other housing industry professionals who provide the second home and taken advantage of this provision without housing less affordable for American families and will eliminate
homes that are central to American family life. Our members are job creators who take on realizing it. For example, when a home owner sells one home and more than 8,000 American jobs.
challenges and get things done. During NAHB’s 2017 Legislative Conference, NAHB will ask federal purchases another, they effectively own two residences in a single
year. The second home MID rules also allow taxpayers to claim up
policymakers to move forward on several key issues. to 24 months of construction loan interest when a family lives in an National Flood Insurance Program
existing home while a new one is being constructed.
Reasonable regulations are essential to protecting the health Since 1968, the National Flood Insurance Program (NFIP) has
Reforming the Nation’s Regulatory Bureaucracy and safety of workers, the environment, and financial LOW INCOME HOUSING played a critical role in directing the development of flood-prone
institutions, but they must strike a balance. Federal regulations TAX CREDIT areas and managing the risk of flooding for residential properties.
Legislators and regulators are increasingly distant from must be carefully structured to achieve their intended benefits One of the most effective provisions supporting affordable rental In 2014, Congress addressed the excessive flood insurance rates
American enterprise. They are unaware of the ways their while minimizing the burdens on small businesses. housing is the Low Income Housing Tax Credit (LIHTC). Created as and made other important changes, including requiring FEMA to
complex web of regulations affects businesses – especially small part of the Tax Reform Act of 1986, the LIHTC promotes take all local flood structures into account while mapping and
businesses – and slows the economy. The Future of Housing Finance public-private partnerships to produce affordable rental housing providing reimbursement for consumers who successfully appeal
The housing industry provides a good example. On average, that serves households earning 60 percent or less of the area the maps.
nearly 25 percent of the cost of building a typical new A healthy housing market is the cornerstone of a strong U.S. median income. Because compliance is monitored by state In an effort to reduce taxpayer risk, Congress has discussed
single-family home – almost $85,000 – is attributable to economy. But almost 10 years after the Great Recession pushed housing finance agencies as well as investors, LIHTC projects have increasing access to private flood insurance. NAHB supports
government regulation. the economy to the brink of disaster, the nation’s housing market a foreclosure rate that is only about one-third of other multifamily competition in the marketplace, but only if it does not negatively
Three key reforms can fix this broken system: 1) restore remains far below its potential. properties. affect the affordability and availability of the NFIP. The NFIP must
congressional oversight to rulemaking 2) ensure rulemaking The unsettled housing finance system contributes greatly to be reauthorized by Sept, 30, 2017.
agencies consider the disproportionate impact rules have on the problem. Uncertainty in the system stymies investment, slows BUSINESS INTEREST DEDUCTION (BID)
small businesses; and 3) reconsider the rulemaking process. the housing market and presents downside risks to the broader AND EXPENSING Energy Codes
Any reform effort must restore congressional oversight to economy. Congress is considering allowing immediate expensing for all
rulemaking. Unelected Washington bureaucrats employ various While some steps have been taken to address weaknesses in business investments, with the trade-off of eliminating the The latest energy codes are overly expensive, inflexible and
mechanisms, including interpretive rules, guidance documents the mortgage market, there has been no meaningful progress in deduction for business interest. Debt is the fuel for small business exceedingly burdensome. Home builders have limited flexibility to
and policy statements, to establish new laws beyond the intent implementing comprehensive reforms to the housing finance growth, and increasing the cost of debt will make it more difficult meet these requirements, even if less expensive products may
of Congress. There are few checks against this power grab. system to ensure that housing credit is available and affordable for small home builders to thrive. Additionally, small home builders achieve the same energy use reductions. This means home buyers
The process for putting federal regulations in place has not and is delivered through a sound and competitive system. generally can expense their business investments through Section pay for expensive upgrades for which the return may never be fully
been updated since 1946. It’s time for Congress to provide for Federal support is particularly important in continuing the 179 of the tax code. NAHB estimates that eliminating the BID would realized.
greater transparency and public input during rule development, availability of the affordable 30-year, fixed-rate mortgage that reduce a small builder’s after-tax income by 11 percent. To ensure H.R. 2361, the Energy Savings and Building Efficiency Act of 2017,
better public access to the data used in the process, and more has helped enable millions of American families to build wealth that our future tax code is truly pro-growth, Congress must would address many of these concerns.
emphasis on lower-cost alternatives. and financial security through homeownership. maintain a BID for small businesses. NAHB - June 2017
July 2017 | GREATER SAN ANTONIO BUILDERS ASSOCIATION 15