Tax Reform 2017
How Did Tax Reform Affect Development Finance?
The recently reformed Internal Revenue Code affects the development industry in a variety of ways, both large and small. Listed below are the key development finance tools governed by the tax code, with an explanation of they are impacted by the new tax laws.
Private Activity Bonds
Tax-exempt private activity bonds (PABs) are fully preserved under the updated tax code, which includes 501(c)(3) bonds, exempt facility bonds, student loan bonds, small issue bonds, and mortgage bonds. While the code fully preserves PABs, the new tax laws reduce the corporate income tax from 35 percent to 21 percent; a factor that may lower demand for PABs.
Tax Credit Bonds
Tax credit bonds, including qualified zone academy bonds (QZABs), qualified school construction bonds (QSCBs), clean renewable energy bonds (CREBs), new clean renewable energy bonds (New CREBs), qualified forestry conservation bonds, qualified energy conservation bonds (QECBs), and Build America Bonds (BABs), are eliminated by the new tax laws. Fortunately, federal tax credits will remain available for holders of outstanding tax credit bonds issued before December 31, 2017.
Tax-exempt, governmental use bonds used to finance professional sports stadiums are preserved in the reformed tax code.
Low-Income Housing Tax Credits
Low-Income Housing Tax Credits (LIHTCs) are preserved in the reformed tax code. However, as with PABs, the reduction in the corporate tax rate from 35 percent to 21 percent will lead to a corresponding reduction in the value of LIHTCs.
New Markets Tax Credits
New Markets Tax Credits (NMTCs) are preserved in the reformed tax code, and the 2018 and 2019 allocation rounds of $3.5 billion have been retained.
Historic Tax Credits
Historic Tax Credits (HTCs) are preserved in the reformed tax code, but with modifications. The 20 percent HTC will now be claimed over a period of 5 years, rather than at the time the building opens. Additionally, the 10 percent credit for properties in service prior to 1936 is eliminated.
-Tax Reform Headlines
For additional information on the development finance implications of tax reform, please contact Tim Fisher