Upcoming Tax Cuts Already Impacting Affordable Housing Funding
President Trump campaigned on significant corporate tax cuts, and now that he has taken office, he is looking to make good on those campaign promises. He has pledged to reduce the corporate tax rate from 35% to as low as 15%. Despite the lack of an actual tax bill being introduced to date, the President’s promise to cut business tax rates has already had a considerable impact on the affordable housing industry, especially in California.
Affordable housing projects often rely heavily on tax credits that are sold to investors for financing. The prospect of reduced business tax rates has already led to a reduction in the value of these tax credits by about 20% in some instances. Not all, but many large banks and other investors are backing away from this tax credit program that allows investors to take a reduction in corporate taxes in return for their investment in affordable or low-income housing projects. The concern is that lower business tax rates would lead to a reduction in investment in affordable housing projects because once these significant tax cuts are in place, investors would no longer have the same level of need for these kinds of tax credits.
While this is a concern for affordable housing projects nationwide, California is particularly at risk. The state is in the midst of an affordable housing crisis with the lowest home ownership rates since the 1940s and rents at an all-time high. In California, tax credits provide the largest source of funding for affordable housing projects in the state. Since the election, affordable housing projects across California are already looking at multimillion dollar funding gaps, and future funding for these projects could be at risk as well. It has been estimated that the state could face a reduction in low-income housing funding by as much as $250 million this year alone.
While we do not yet know exactly what will be included in the President’s tax plan, it is evident that even the prospect of these kinds of tax cuts is already significantly impacting funding for affordable housing. Only time will tell how far reaching this impact will be as we learn more of the upcoming changes to tax rates.Share
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