Report Evaluates Effect of Tax Reform on Affordable Rental Housing

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Analysis released by Novogradac & Company LLP finds lower corporate tax rate and extended depreciation would lead to loss of hundreds of millions in equity raised for affordable rental housing.

Affordable Rental Housing After Tax Reform: Calculating Corporate Tax Reform’s Possible Effects on Equity Raised from Low-Income Housing Tax Credits

If current corporate tax reform efforts are successful, the resulting changes to the tax code will affect the amount of equity that can be raised from the low-income housing tax credit (LIHTC), according to a report released by Novogradac & Company LLP. Because, as Ways and Means Ranking Member Sander Levin noted during a recent hearing on tax reform, the LIHTC is not a loophole but a tax expenditure adopted on a bipartisan basis during the last major tax reform effort, the report’s analysis is based on its continued existence as a permanent part of the tax code and focuses on the effect of other proposed changes that could result in less LIHTC equity raised for the creation of affordable rental housing.

To gauge the effect of lower corporate tax rates and longer depreciation periods on LIHTC yields and investor equity pricing, Novogradac & Company conducted an analysis that contemplates the possible ripple effects of these two tax reform outcomes on LIHTC investor yields, investor equity pricing and the amount of equity raised.

“Our evaluation found that if the amount of investor equity is held constant, lower top corporate tax rates lower LIHTC yields, therefore creating downward pressure on LIHTC investor equity pricing. Layering in the effect of extending depreciation periods would further exacerbate these reductions,” said Michael J. Novogradac, CPA, managing partner in the firm’s San Francisco office. “For the equity market as a whole, this could mean a loss of $220 million to nearly $1 billion dollars, or more, in equity used to finance affordable rental housing.”

Novogradac & Company ran a series of calculations using an investor internal rate of return model, at a range of investor equity prices from $0.80 to $1.00, for 9 percent investments and 4 percent tax-exempt bond investments. The calculations considered the effect of the corporate tax rate dropping from the current level of 35 percent to 30 percent, 28 percent and 25 percent. The calculations also estimate the effect of extending the depreciation period for residential rental property.

“The estimates presented in this special report are meant to serve as a reference point for the affordable rental housing community to consider as tax reform efforts advance,” said Novogradac. “A loss of as much as $1 billion dollars, or more, in annual equity raised could lead to a reduction in the total number of affordable rental units built or rehabilitated each year to as high as 9,500 units or more.”

For more details and a copy of the report, please go to

Novogradac & Company LLP was founded in 1989, and has since grown to more than 400 employees and partners in offices in San Francisco and Long Beach, Calif.; the Washington, D.C., Atlanta, Ga., Detroit, Mich., Kansas City, Mo. and Seattle, Wash. metro areas; St. Louis, Mo.; Boston, Mass.; Austin, Texas; Dover, Columbus and Cleveland, Ohio; New York, N.Y. and Portland, Ore. Specialty practice areas include tax, audit and consulting services for tax-credit-assisted multifamily and affordable housing, community revitalization and rehabilitation of historic properties. Other areas of expertise include military base redevelopment, preparation and analysis of market studies and appraisals of multifamily housing investments and renewable energy tax credits.

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Michael J. Novogradac
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