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RubinBrown Partner, Amy Broadwater, Recaps Key Learnings from the NCSHA Conference


Recently, I had the pleasure of participating on The Impact of Tax Reform on Deal Structuring panel at NCSHA’s Housing Credit Connect. My fellow panelists and I delved into how various components of tax reform have impacted the low-income housing tax credit community. These components included such items as the decrease in the corporate tax rate, changes in depreciation rules and the interest expense limitation.


The components of tax reform that we discussed have had real effects on low-income housing tax credit deals, some positive and some negative. The combination of these changes impact the yield to the investors, which then impacts equity pricing. Investors in low-income housing tax credit deals receive tax benefits from the low-income housing tax credits, but they also receive tax benefits from the taxable losses allocated to them. For example, with the drop in corporate tax rate from 35% to 21%, the tax benefits derived from the losses have less value to investors, and thus decreases the yield to an investor. On the other hand, the increase in the bonus depreciation percentage from 50% to 100% has allowed some deals to deliver losses to investors earlier, which increases the yield to the investor.


Overall, tax reform has led to lower equity pricing for low-income housing tax credit deals. Tax reform also led to more importance being placed upon the upfront financial projections that are prepared prior to the closing on a low-income housing tax credit partnership. Because of the complexities that came from tax reform, there are more issues than ever that need to be addressed prior to closing on a low-income housing tax credit transaction. All of the panelists agreed that it is never too early to get your tax advisor involved in your deal to start sorting through those issues.


 

 

 

 


July 17, 2019


RubinBrown Partner, Amy Broadwater, Recaps Key Learnings from the NCSHA Conference


Recently, I had the pleasure of participating on The Impact of Tax Reform on Deal Structuring panel at NCSHA’s Housing Credit Connect. My fellow panelists and I delved into how various components of tax reform have impacted the low-income housing tax credit community. These components included such items as the decrease in the corporate tax rate, changes in depreciation rules and the interest expense limitation.


The components of tax reform that we discussed have had real effects on low-income housing tax credit deals, some positive and some negative. The combination of these changes impact the yield to the investors, which then impacts equity pricing. Investors in low-income housing tax credit deals receive tax benefits from the low-income housing tax credits, but they also receive tax benefits from the taxable losses allocated to them. For example, with the drop in corporate tax rate from 35% to 21%, the tax benefits derived from the losses have less value to investors, and thus decreases the yield to an investor. On the other hand, the increase in the bonus depreciation percentage from 50% to 100% has allowed some deals to deliver losses to investors earlier, which increases the yield to the investor.


Overall, tax reform has led to lower equity pricing for low-income housing tax credit deals. Tax reform also led to more importance being placed upon the upfront financial projections that are prepared prior to the closing on a low-income housing tax credit partnership. Because of the complexities that came from tax reform, there are more issues than ever that need to be addressed prior to closing on a low-income housing tax credit transaction. All of the panelists agreed that it is never too early to get your tax advisor involved in your deal to start sorting through those issues.

 
 
Readers should not act upon information presented without individual professional consultation.

Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.


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