So Tax Reform Passed… What Happens to Private Activity Bonds?

As you likely heard, the affordable housing community was scrambling to figure out how to deal with the potential loss of Private Activity Bonds (PABs) under the tax reform legislation, as first proposed.  PABs are tax-exempt bonds issued by VHDA to finance rental housing. PABs are also convertible into Mortgage Credit Certificates (MCCs) for use in our Homeownership program. The House version of the bill completely eliminated PABs. Well, good news for PABs: In the tax reform legislation as signed into law, PABs as they existed before tax reform were entirely preserved.

What does this mean for VHDA and its customers?

Both our Homeownership and Rental programs will continue to operate as they have in the past, including the issuance of MCCs for home loans, and the issuance of tax-exempt housing bonds (PABs) with the associated 4% Low Income Housing Tax Credits (LIHTC) for affordable rental housing.

While the entire LIHTC Program was preserved in the legislation, there is concern that demand for tax credits due to the decreased corporate tax rate (formerly at 35%, now at 21%) will reduce the price.  This would result in less equity funding for rental developments. This is still “TBD,” but stay tuned as we determine the impact of tax reform legislation in 2018.

Questions?

Contact Toni Ostrowski in homeownership at toni.ostrowski@vhda.com or JD Bondurant in the rental division at jd.bondurant@vhda.com.