New minimum four percent tax credits floor could bring 1,000 more affordable Nevada units

The COVID-19 relief bill signed into law at the end of 2020 included a permanent minimum 4% floor to the 4% tax credit program. The 4% Low Income Housing Tax Credit (LIHTC) is used together with private activity bonds to build or maintain affordable housing. Novogradac, a company that provides professional services to investors and developers of tax credit projects, estimates the floor may provide up to 126,000 more LIHTC units over the next ten years for the United States, including over 1,000 additional units in Nevada. The minimum floor gives the 4% program parity with the 9% LIHTC program which first received a minimum floor in 2008 during the recession. The minimum floor for the 9% program was made permanent in 2015.

Despite the name “4%”, the original tax law establishing the LIHTC program specified that the net present value of the credits were to be equal to 30% of the allowed cost basis, with the rate floating to meet this requirement. In the recent era of low market interest rates, the actual credit rate decreased to as low as 3.07%. Novogradac estimates an average increase in equity due to the floor equal to over 20%.

See Wallace et al., April 30, 2020, "Four Percent Floor Could Finance Nearly 126,000 Additional Affordable Rental Homes Over 2020-29" Novogradac. 

See also Keightly, Mark P. February 27, 2019. Congressional Research Service Report RS22389, An Introduction to the Low Income Housing Tax Credit. Congressional Research Service.