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.
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