On Dec. 16, the Senate approved a one-year package of tax extenders, the Tax Increase Prevention Act of 2014 (H.R. 5771) that will expire on Dec. 31, 2014. The House passed this legislation on Dec. 3. The law is essentially retroactive, so Congress will have to take up the same questions again in 2015. The package includes a long list of tax provisions with a few specifically on housing: Low Income Housing Tax Credit (LIHTC) and mortgage debt relief.
- Fixed 9% rate for LIHTC. The Housing Credit rate was set at 9 percent minimum (as opposed to floating). However, most deals have already closed using the floating rate, so this provision has negligible value for LIHTC projects. A floating rate in 2014 has meant affordable housing projects receive 15-20 percent less equity making projects more difficult to finance and complete. The legislation did not include the 4 percent credit minimum proposal.
- Tax relief for struggling homeowners. The bill includes mortgage debt tax relief which prevents homeowners from having to pay income tax on debt that gets forgiven in a mortgage modification or short sale. The provision will help homeowners who went through a modification or short sale in 2014, but homeowners will again face uncertainty in 2015. NHC has long advocated for mortgage debt relief; it helps prevent additional financial burden for distressed homeowners and enables decisions to help people move forward. This legislation was originally passed in 2007 and received extensions in 2009 and 2012. The number of short sales declined this year, which is partially because of an improved economy and fewer foreclosures, but also because of homeowner uncertainty about negative tax consequences.
The legislation also included an extension of the New Markets Tax Credit, energy provisions, and bonus depreciation. The earlier tax deal debated in late November included minimum 9 percent and 4 percent credit rates and mortgage debt relief for two years, through 2015, but because of the threat of presidential veto, that deal did not move forward. Congress will again have to address tax extenders in 2015.