A BRIEF HISTORY OF THE TAX CREDIT

THE HISTORY OF THE TAX CREDIT CAN BE SEPARATED INTO EIGHT PERIODS:

Prior Law

Under prior law, there were three major income tax subsidies of low income housing. They were:

-The Section 167(K) rapid amortization provision, which allowed the expenditures incurred to rehabilitate low income housing to be amortized on a straight line basis over 5 years.

-The 15 year accelerated depreciation allowance, which allowed taxpayers a 200% declining balance depreciation method.

-The construction period interest and taxes exception, which allowed taxpayers to expense interest and real property taxes incurred during construction.

In return for these three subsidies, building owners were required to rent to a minimum number of low income individuals. However, since there were no rental income limitations, building owners were free to charge any rental amount that the low income tenants were willing to pay.

Tax Reform Act of 1986 (TRA '86)

The initial concept for the Federal Housing Tax Credit was introduced around 1975. Since that time, the Credit has been analyzed and reviewed by various Congressional committees, and finally adopted by Congress as part of the tax reform act of 1986. As you may be painfully aware, this act also eliminated the abusive shelters such as oil and gas, alternative energy and precious metals. As part of adopting the Tax Credit and creating its own tax code (IRS Code Section 42), Congress eliminated the three prior subsidies believing that those subsidies provided an insufficient incentive to build affordable housing. The goal of Congress was to create an indirect federal subsidy of affordable housing that would provide incentives for landlords to increase the occupancy level of affordable housing, while imposing limitations on the amount of rent they could charge to low income tenants.

Technical Corrections

During 1987 and 1988, Congress enacted the Technical and Miscellaneous Revenue Act of 1988 (TAMRA) which corrected many of the errors and oversights of the original Tax Credit provisions enacted by the TRA '86. TAMRA contained a major change that liberalized the rules regarding the date the required development was placed in service. Under TRA '86, a building was generally required to be placed in service the year that the Tax Credit allocation was received from the applicable state housing agency. Under TAMRA, a building can be placed in service for up to two years following the year during which the Tax Credit is allocated to the development. By allowing this additional year, beginning in 1989, this major hurdle was eliminated and finally cleared the way for the growth of desperately needed affordable housing.

Omnibus Budget Reconciliation Act of 1989

On November 21, 1989, Congress passed the Omnibus Budget Reconciliation Act of 1989 (OBRA '89), extending the credit through December 31, 1990. This act also mandated a point allocation system used to qualify the developer and the economic viability of the proposed Tax Credit development.

Omnibus Budget Reconciliation Act of 1990

On November 5, 1990, the Omnibus Budget Reconciliation Act of 1990 (OBRA '90) was signed by President Bush, extending the credit through December 31, 1991.

Tax Extension Act of 1991

On November 27,1992, under Bill HR 3909, Congress acted to extend the Tax Credits and mortgage revenue bonds used to finance Tax Credits, for 6 months expiring June 30, 1992.

Omnibus Budget Reconciliation Act of 1993

Signed into law on August 10, 1993, Federal Housing Tax Credits became a permanent part of the law and were continued retroactively from June 30, 1992.

THE PRESENT

The Chairman of the Tax Writing Committee in the House of Representatives stated that the Federal Housing Tax Credit has the most merit among the existing tax incentives. In fact, because of the efficiency of the program and the increasing need for affordable housing, the Federal Housing Tax Credit has become a PERMANENT part of the law.