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Year-End Bill Impacts Community & Economic Development Industry

AAFCPAs would like to make clients aware that the Consolidated Appropriations Act, 2021 (The Act), signed by the President on December 27th, contains several provisions impacting the Community & Economic Development Industry. We have outlined the key provisions below, for your convenience.

Low-Income Housing Tax Credit

4% Permanent

The Act makes permanent the floor rate of 4%, which separates the rate from the borrowing rates set by the Treasury Department. This new floor rate would apply to projects which receive the tax credits after December 31, 2020. As of December 2020, the current rate was as low as 3.09%.

As a result, it is likely to increase the attractiveness of these credits to corporate investors, who receive a reduction on federal income taxes for 10 years based on the rate. As interest rates remain low, and state and local governments find themselves short on cash, the LIHTC may be used by developers to raise more equity through tax credit sales and thereby free up subsidies for projects.

LIHTC Allocations and Extensions

The Act provides a $1.2 billion allocation of LIHTC for the 11 states and Puerto Rico that experienced non-COVID-19 major disasters in 2020 that qualified for Federal Emergency Management Agency (FEMA) individual and public assistance.

Additionally, LIHTC properties in qualified disaster zones have an additional 12 months to satisfy the 10% test and placed-in-service deadline.

NMTC

The new markets tax credit (NMTC) was extended five years to 2025 and continues the $5 billion in annual NMTC allocation established in 2020.

Renewable Energy Tax Credits (RETC)

The renewable energy investment tax credit (ITC) was extended at 26% for an additional two years for properties that begin construction in 2020 through the end of 2022. Solar projects beginning in 2023 will be eligible for a 22% credit and solar projects starting in 2024 will be eligible for a 10% credit.

The renewable energy production tax credit (PTC) also received an extension for one year for properties that will begin construction by the end of 2021 for a 60% PTC.

Other Impactful Credits and Deductions

IRC Section 45L Credit

The new energy-efficient home tax credit of up to $2,000 per unit was extended through the end of 2021.

IRC Section 179D Deductions

The commercial property energy efficiency deduction is now permanent and may be used for multifamily housing.  The energy-efficiency standards have been updated and the deduction rate is indexed for inflation.

30-year ADS Depreciation

The Act allows Real Property Trades or Businesses that elect out of the interest limitation to use the 30-year Alternative Depreciation System (ADS) for residential rental property which is placed in service before January 1, 2018.

Additional Appropriations

This Act also appropriated the following funds:

  • $12 billion to fund community development financial institutions (CDFIs) and minority depository institutions (MDIs) for targeted emergency investments intended to help disadvantaged communities respond to the economic impact of COVID-19.
  • $9 billion to fund and establish the emergency capital investment program to CDFIs and MDIs to support lending in low-income and underserved communities, including persistently poor counties, and
  • $3 billion for emergency support for CDFIs through the CDFI Fund to respond to the economic impact of the pandemic on underserved low-income and minority communities. At least $1.2 billion is set aside for minority lending institutions.

Additionally, The Act includes an additional $25 billion in emergency rental assistance, and a month extension of the Federal eviction moratorium through January 31, 2021.

As always, AAFCPAs will continue to monitor the status of the legislation, as well as communications from the IRS and the Treasury Department. We will keep you informed as changes occur or become clarified.

If you have any questions about how these provisions affect your organization, please contact Brittany Besler, MBA, CPA, Esq. at 774.512.9001, bbesler@nullaafcpa.com; Matthew McGinnis, CPA at mmcginnis@nullaafcpa.com, 774.512.4080; or your AAFCPAs Partner.

 

About the Authors

Brittany Besler
Brittany possesses a unique combination of tax, legal, and business backgrounds, and is a valuable member of AAFCPAs’ Tax practice. She provides tax planning, research, and compliance solutions for corporations, partnerships, nonprofits, individuals, estates & trusts. Brittany advises businesses and individuals on various federal, state, local and foreign tax-related issues, including counseling clients on the consequences of new and updated tax laws. She assists clients in the creation of appropriate and optimal organizational structures, and advises on tax planning and tax exemption compliance. She advises newly-formed and well-established nonprofit clients on meeting compliance requirements of various government agencies, including the IRS rules on fundraising and political activities.
Matt McGinnis
Matt has been serving AAF clients since 2006. Matt has extensive experience auditing and consulting with nonprofit organizations in accordance with Uniform Guidance/Single Audit and Government Auditing Standards, as well as those with Massachusetts Uniform Financial Statement filing requirements. Matt’s experience within the not for profit industry includes: affordable housing, community development, charter schools and human services organizations. Matt’s for-profit clients include both commercial and residential real estate projects. Matt specializes in various tax credit deals such as Low Income Housing Tax Credit (LIHTC) and New Markets Tax Credit (NMTC) programs.