Affordable Housing Credit Improvement Act of 2016

To amend the Internal Revenue Code of 1986 to reform the low-income housing credit, and for other purposes. 1. Short title; table of contents (a) Short title This Act may be cited as the Affordable Housing Credit Improvement Act of 2016 (b) Table of contents The table of contents for this Act is as follows: Sec. 1. Short title; table of contents. TITLE I—Reform of State allocation formulas Sec. 101. Increases in State allocations. TITLE II—Reforms relating to tenant eligibility Sec. 201. Average income test. Sec. 202. Uniform income eligibility for rural projects. Sec. 203. Codification of rules relating to increased tenant income. Sec. 204. Modification of student occupancy rules. Sec. 205. Tenant voucher payments taken into account as rent for certain purposes. TITLE III—Credit rate and other rules relating to credit eligibility and determination Sec. 301. Minimum credit rate. Sec. 302. Reconstruction or replacement period after casualty loss. Sec. 303. Modification of rights relating to building purchase. Sec. 304. Modification of 10-year rule; limitation on acquisition basis. Sec. 305. Certain relocation costs taken into account as rehabilitation expenditures. Sec. 306. Repeal of qualified census tract population cap. Sec. 307. Determination of community revitalization plan to be made by State housing credit agency. Sec. 308. Prohibition of local approval and contribution requirements. Sec. 309. Increase in credit for certain projects designated to serve extremely low-income households. Sec. 310. Increase in credit for bond-financed projects designated by State agency. Sec. 311. Elimination of basis reduction for low-income housing properties receiving certain energy benefits. TITLE IV—Reforms relating to Native American assistance Sec. 401. Selection criteria under qualified allocation plans. Sec. 402. Inclusion of Indian areas as difficult development areas for purposes of certain buildings. TITLE V—Affordable housing tax credit Sec. 501. Affordable housing tax credit. I Reform of State allocation formulas 101. Increases in State allocations (a) Phase-In of increases (1) In general Clause (ii) of section 42(h)(3)(C) (A) by striking $1.75 the per capita dollar amount (B) by striking $2,000,000 the minimum ceiling amount (2) Per capita dollar amount; minimum ceiling amount Subparagraph (I) of section 42(h)(3) of such Code is amended to read as follows: (I) Per capita dollar amount; minimum ceiling amount For purposes of this paragraph— (i) Per capita dollar amount The per capita dollar amount is— (I) for calendar year 2016, $2.35, (II) for calendar year 2017, $2.59, (III) for calendar year 2018, $2.82, (IV) for calendar year 2019, $3.06, (V) for calendar year 2020, $3.29, and (VI) $3.53 thereafter. (ii) Minimum ceiling amount The minimum ceiling amount is— (I) for calendar year 2016, $2,690,000, (II) for calendar year 2017, $2,959,000, (III) for calendar year 2018, $3,228,000, (IV) for calendar year 2019, $3,497,000, (V) for calendar year 2020, $3,766,000, and (VI) $4,035,000 thereafter. . (3) Modification of cost-of-living adjustment Subparagraph (H) of section 42(h)(3) of such Code is amended— (A) by striking 2002 2016 (B) by striking the $2,000,000 and $1.75 amounts in subparagraph (C) the dollar amounts applicable to such calendar year under clauses (i) and (ii) of subparagraph (I) (C) by striking 2001 2015 (D) by striking $2,000,000 minimum ceiling (E) by striking $1.75 per capita dollar (4) Effective date The amendments made by this subsection shall apply to calendar years beginning after December 31, 2016. (b) Permanent increases (1) In general Clause (ii) of section 42(h)(3)(C) (A) by striking the per capita dollar amount $3.53 (B) by striking the minimum ceiling amount $4,035,000 (2) Conforming amendment Paragraph (3) of section 42(h) of such Code is amended by striking subparagraph (I), as amended by subsection (a)(2). (3) Cost-of-living adjustment Subparagraph (H) of section 42(h)(3) of such Code, as amended by subsection (a)(3), is amended— (A) by striking the dollar amounts applicable to such calendar year under clauses (i) and (ii) of subparagraph (I) the $4,035,000 and $3.53 amounts in subparagraph (C) (B) by striking minimum ceiling $4,035,000 (C) by striking per capita dollar $3.53 (4) Effective date The amendments made by this subsection shall apply to calendar years beginning after December 31, 2021. II Reforms relating to tenant eligibility 201. Average income test (a) In general Paragraph (1) of section 42(g) (1) by striking subparagraph (A) or (B) subparagraph (A), (B), or (C) (2) by inserting after subparagraph (B) the following new subparagraph: (C) Average income test (i) In general The project meets the minimum requirements of this subparagraph if 40 percent or more (25 percent or more in the case of a project described in section 142(d)(6)) of the residential units in such project are both rent-restricted and occupied by individuals whose income does not exceed the imputed income limitation designated by the taxpayer with respect to the respective unit. (ii) Special rules relating to income limitation For purposes of clause (i)— (I) Designation The taxpayer shall designate the imputed income limitation of each unit taken into account under such clause. (II) Average test The average of the imputed income limitations designated under subclause (I) shall not exceed 60 percent of area median gross income. (III) 10-percent increments The designated imputed income limitation of any unit under subclause (I) shall be 20 percent, 30 percent, 40 percent, 50 percent, 60 percent, 70 percent, or 80 percent of area median gross income. . (b) Rules relating to next available unit Subparagraph (D) of section 42(g)(2) (1) in clause (i), by striking clause (ii) clauses (ii), (iii), and (iv) (2) in clause (ii)— (A) by striking If In the case of a project with respect to which the taxpayer elects the requirements of subparagraph (A) or (B) of paragraph (1), if (B) by striking the second sentence, and (C) by striking Next available unit must be rented to low-income tenant if income rises above 140 percent of income limit Rental of next available unit in case of 20–50 or 40–60 test (3) by adding at the end the following new clauses: (iii) Rental of next available unit in case of average income test In the case of a project with respect to which the taxpayer elects the requirements of subparagraph (C) of paragraph (1), if the income of the occupants of the unit increases above 140 percent of the greater of— (I) 60 percent of area median gross income, or (II) the imputed income limitation designated with respect to the unit under paragraph (1)(C)(ii)(I), clause (i) shall cease to apply to any such unit if any residential rental unit in the building (of a size comparable to, or smaller than, such unit) is occupied by a new resident whose income exceeds the limitation described in clause (v). (iv) Deep rent skewed projects In the case of a project described in section 142(d)(4)(B), clause (ii) or (iii), whichever is applicable, shall be applied by substituting 170 percent 140 percent (I) in the case of clause (ii), by substituting any low-income unit in the building is occupied by a new resident whose income exceeds 40 percent of area median gross income any residential rental unit (II) in the case of clause (iii), by substituting any low-income unit in the building is occupied by a new resident whose income exceeds the lesser of 40 percent of area median gross income or the imputed income limitation designated with respect to such unit under paragraph (1)(C)(ii)(I) any residential rental unit (v) Limitation described For purposes of clause (iii), the limitation described in this clause with respect to any unit is— (I) the imputed income limitation designated with respect to such unit under paragraph (1)(C)(ii)(I), in the case of a unit which was taken into account as a low-income unit prior to becoming vacant, and (II) the imputed income limitation which would have to be designated with respect to such unit under such paragraph in order for the project to continue to meet the requirements of paragraph (1)(C)(ii)(II), in the case of any other unit. . (c) Effective date The amendments made by this section shall apply to elections made under section 42(g)(1) 202. Uniform income eligibility for rural projects (a) In general Paragraph (8) of section 42(i) (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2016. 203. Codification of rules relating to increased tenant income (a) In general Clause (i) of section 42(g)(2)(D) clauses (ii), (iii), and (iv) (I) a low-income unit shall continue to be treated as a low-income unit if the income of such occupants initially was 60 percent or less of area median gross income and such unit continues to be rent-restricted, and (II) a unit to which, at the time of initial occupancy by such occupants, any Federal, State, or local government income restriction applied, and which subsequently becomes part of a building with respect to which rehabilitation expenditures are taken into account under subsection (e), shall be treated as a low-income unit if the income of such occupants initially was 60 percent or less of area median gross income and does not exceed 120 percent of area median gross income as of the date of acquisition of the property by the taxpayer. . (b) Exception Subparagraph (D) of section 42(g)(2) (vi) Exception to rule relating to increased tenant income In the case of an occupant of a low-income unit who initially qualified to occupy such unit by reason of paragraph (1)(C) with an income in excess of 60 percent of area median gross income but not in excess of 80 percent of area median gross income, clause (i) shall be applied for substituting 80 percent 60 percent . (c) Effective date The amendments made by this section shall apply to taxable years beginning after December 31, 2015. 204. Modification of student occupancy rules (a) In general Subparagraph (D) of section 42(i)(3) (D) Rules relating to students (i) In general A unit occupied solely by individuals who— (I) have not attained age 24, and (II) are enrolled in a full-time course of study at an institution of higher education (as defined in section 3304(f)), shall not be treated as a low-income unit. (ii) Exception for certain Federal programs In the case of a federally assisted building (as defined in subsection (d)(6)(C)(i)), clause (i) shall not apply to a unit the occupants of which meet all requirements applicable under the housing program described in subsection (d)(6)(C)(i) through which the building is assisted, financed, or operated. (iii) Other exceptions Clause (i) shall not apply to a unit occupied by an individual who— (I) is married, (II) is a person with disabilities (as defined in section 3(b)(3)(E) of the United States Housing Act of 1937), (III) is a veteran (as defined in section 101(2) of title 38, United States Code), (IV) has one or more qualifying children (as defined in section 152(c)), or (V) meets the income limitation applicable under subsection (g)(1) to the project of which the building is a part and is, or was immediately prior to attaining the age of majority— (aa) an emancipated minor or in legal guardianship as determined by a court of competent jurisdiction in the individual's State of legal residence, (bb) under the care and placement responsibility of the State agency responsible for administering a plan under part B or part E of title IV of the Social Security Act, or (cc) was an unaccompanied youth (within the meaning of section 725(6) of the McKinney-Vento Homeless Assistance Act ( 42 U.S.C. 11434a(6) 42 U.S.C. 11434a(2) . (b) Effective date The amendment made by this section shall apply to taxable years beginning after December 31, 2016. 205. Tenant voucher payments taken into account as rent for certain purposes (a) In general Subparagraph (B) of section 42(g)(2) is amended by adding at the end the following new sentence: In the case of a project with respect to which the taxpayer elects the requirements of subparagraph (C) of paragraph (1), or the portion of a project to which subsection (d)(5)(C) applies, clause (i) shall not apply with respect to any tenant-based assistance (as defined in section 8(f)(7) of the United States Housing Act of 1937 ( 42 U.S.C. 1437f(f)(7) (b) Effective date The amendments made by this section shall apply to rent paid in taxable years beginning after December 31, 2016. III Credit rate and other rules relating to credit eligibility and determination 301. Minimum credit rate (a) In general Subsection (b) of section 42 (1) by redesignating paragraph (3) as paragraph (4), and (2) by inserting after paragraph (2) the following new paragraph: (3) Minimum credit rate In the case of any new or existing building to which paragraph (2) does not apply and which is placed in service by the taxpayer after December 31, 2015, the applicable percentage shall not be less than 4 percent. . (b) Effective date The amendments made by this section shall apply to buildings placed in service after December 31, 2015. 302. Reconstruction or replacement period after casualty loss (a) In general Subparagraph (E) of section 42(j)(4) a reasonable period established by the Secretary a reasonable period established by the applicable housing credit agency (not to exceed 25 months from the date on which the casualty loss arises). The determination under paragraph (1) shall not be made with respect to a property the basis of which is affected by a casualty loss until the period described in the preceding sentence with respect to such property has expired. (b) Effective date The amendment made by this section shall apply to casualty losses arising after the date of the enactment of this Act. 303. Modification of rights relating to building purchase (a) In general Subparagraph (A) of section 42(i)(7) (1) by striking a right of 1st refusal an option (2) by striking the property the property or a partnership interest relating to the property (b) Conforming amendment Subparagraph (B) of section 42(i)(7) In the case of a purchase of a partnership interest, the minimum purchase price is an amount equal to such interest's ratable share of the amount determined under the first sentence of this subparagraph. (c) Effective date The amendments made by this section shall apply to agreements entered into or amended after the date of the enactment of this Act. 304. Modification of 10-year rule; limitation on acquisition basis (a) In general Clause (ii) of section 42(d)(2)(B) , or the taxpayer elects the application of subparagraph (C)(ii) service (b) Limitation on acquisition basis Subparagraph (C) of section 42(d)(2) (1) by striking For purposes of subparagraph (A), the adjusted basis (i) In general The adjusted basis , and (2) by adding at the end the following new clauses: (ii) Buildings in service within previous 10 years If the period between the date of acquisition of the building by the taxpayer and the date the building was last placed in service is less than 10 years, the taxpayer's basis attributable to the acquisition of the building which is taken into account in determining the adjusted basis shall not exceed the sum of— (I) the lowest amount paid for acquisition of the building by any person during the 10 years preceding the date of the acquisition of the building by the taxpayer, adjusted as provided in clause (iii), and (II) the value of any capital improvements made by the person who sells the building to the taxpayer which are reflected in such seller's basis. (iii) Adjustment With respect to a basis determination made in any taxable year, the amount described in clause (ii)(I) shall be increased by an amount equal to— (I) such amount, multiplied by (II) a cost-of-living adjustment, determined in the same manner as under section 1(f)(3) for the calendar year in which the taxable year begins by taking into account the acquisition year in lieu of calendar year 1992. For purposes of the preceding sentence, the acquisition year is the calendar year in which the lowest amount referenced in clause (ii)(I) was paid for the acquisition of the building. . (c) Conforming amendments Clause (i) of section 42(d)(2)(D) (1) by striking for subparagraph (B) (2) by striking subparagraph (B)(ii) subparagraph (B)(ii) or (C)(ii) (d) Effective date The amendments made by this section shall apply to buildings placed in service after December 31, 2015. 305. Certain relocation costs taken into account as rehabilitation expenditures (a) In general Paragraph (2) of section 42(e) (C) Certain relocation costs In the case of a rehabilitation of a building to which section 280B does not apply, costs relating to the relocation of occupants, including— (i) amounts paid to occupants, (ii) amounts paid to third parties for services relating to such relocation, and (iii) amounts paid for temporary housing for occupants, shall be treated as chargeable to capital account and taken into account as rehabilitation expenditures. . (b) Effective date The amendment made by this section shall apply to expenditures paid or incurred after December 31, 2015. 306. Repeal of qualified census tract population cap (a) In general Clause (ii) of section 42(d)(5)(B) (1) by striking subclauses (II) and (III), and (2) by striking “ Qualified census tract (I) In general The term , and inserting Qualified census tract (b) Technical corrections Sections 42(d)(4)(C)(i) 42(m)(1)(B)(ii)(III) as defined in paragraph (5)(C) as defined in paragraph (5)(B)(ii) (c) Effective date The amendment made by subsection (a) shall apply to designations of qualified census tracts under section 42(d)(5)(B)(ii) 307. Determination of community revitalization plan to be made by State housing credit agency (a) In general Subclause (III) of section 42(m)(1)(B)(ii) , as determined by the State housing credit agency, the development of which (b) Effective date The amendment made by this section shall apply to allocations of housing credit dollar amounts made after December 31, 2016. 308. Prohibition of local approval and contribution requirements Not later than 120 days after the date of the enactment of this Act, the Secretary of the Treasury shall issue guidance prohibiting States from including a requirement of local approval or local contributions, either as a threshold qualification requirement or as part of a point system to be considered for allocations of housing credit dollar amount under the State's qualified allocation plan for purposes of section 42(m)(1)(B) 309. Increase in credit for certain projects designated to serve extremely low-income households (a) In general Paragraph (5) of section 42(d) (C) Increase in credit for projects designated to serve extremely low-income households In the case of any building— (i) 20 percent or more of the residential units in which are designated by the taxpayer for occupancy by households the aggregate household income of which does not exceed the greater of— (I) 30 percent of area median gross income, or (II) 100 percent of an amount equal to the Federal poverty line (within the meaning of section 36B(d)(3)), and (ii) which is designated by the State housing credit agency as requiring the increase in credit under this subparagraph in order for such building to be financially feasible as part of a qualified low-income housing project, subparagraph (B) shall not apply to the portion of such building which is comprised of such units, and the eligible basis of such portion of the building shall be 150 percent of such basis determined without regard to this subparagraph. . (b) Effective date The amendment made by this section shall apply to buildings placed in service after December 31, 2015. 310. Increase in credit for bond-financed projects designated by State agency (a) In general Clause (v) of section 42(d)(5)(B) is amended by striking the second sentence. (b) Effective date The amendment made by this section shall apply to buildings placed in service after December 31, 2015. 311. Elimination of basis reduction for low-income housing properties receiving certain energy benefits (a) New energy efficient home credit Subsection (e) of section 45L (1) by striking adjustment adjustment (1) In general For purposes , and (2) by adding at the end the following new paragraph: (2) Exception for low-income housing properties Paragraph (1) shall not apply to any property with respect to which a credit is allowed under section 42. . (b) Energy efficient commercial buildings deduction Subsection (e) of section 179D (1) by striking reduction reduction (1) In general For purposes , and (2) by adding at the end the following new paragraph: (2) Exception for low-income housing properties Paragraph (1) shall not apply to any property with respect to which a credit is allowed under section 42. . (c) Energy credit Paragraph (3) of section 50(c) (1) by striking and (2) by striking the period at the end of subparagraph (B) and inserting , and (3) by adding at the end the following new subparagraph: (C) paragraph (1) shall not apply to any property with respect to which a credit is allowed under section 42. . (d) Effective date The amendments made by this section shall apply to property placed in service after December 31, 2015. IV Reforms relating to Native American assistance 401. Selection criteria under qualified allocation plans (a) In general Subparagraph (C) of section 42(m)(1) and , and (xi) the affordable housing needs of individuals in the State who are members of Indian tribes (as defined in section 45A(c)(6)). . (b) Effective date The amendments made by this section shall apply to allocations of credits under section 42 402. Inclusion of Indian areas as difficult development areas for purposes of certain buildings (a) In general Subclause (I) of section 42(d)(5)(B)(iii) , and any Indian area (b) Indian area Clause (iii) of section 42(d)(5)(B) (II) Indian area For purposes of subclause (I), the term Indian area 25 U.S.C. 4103(11) . (c) Eligible buildings Clause (iii) of section 42(d)(5)(B) (IV) Special rule for buildings in Indian areas In the case of an area which is a difficult development area solely because it is an Indian area, a building shall not be treated as located in such area unless such building is assisted or financed under the Native American Housing Assistance and Self Determination Act of 1996 ( 25 U.S.C. 4101 et seq. 25 U.S.C. 4103(22) . (d) Effective date The amendments made by this section shall apply to buildings placed in service after December 31, 2016. V Affordable housing tax credit 501. Affordable housing tax credit (a) In general The heading of section 42 Low-income Affordable (b) Conforming amendments (1) Subsection (a) of section 42 low-income affordable (2) Paragraph (5) of section 38(b) of such Code is amended by striking low-income affordable (3) The heading of subparagraph (D) of section 469(i)(3) of such Code is amended by striking low-income affordable (4) The heading of subparagraph (B) of section 469(i)(6) of such Code is amended by striking low-income affordable (5) Paragraph (7) of section 772(a) of such Code is amended by striking low-income affordable (6) Paragraph (5) of section 772(d) of such Code is amended by striking low-income affordable (c) Clerical amendment The item relating to section 42 in the table of sections for subpart D of part IV of subchapter A of chapter 1 Sec. 42. Affordable housing credit. .

Summary: Affordable Housing Credit Improvement Act of 2016 This bill amends the Internal Revenue Code, with respect to the low-income housing credit, to rename the credit "the affordable housing credit" and make several modifications to the credit. The bill increases state allocations for the credit and modifies the cost-of-living adjustments. It also revises tenant eligibility requirements, with respect to: the average income test, income eligibility for rural projects, increased tenant income, student occupancy rules, and tenant voucher payments that are taken into account as rent. The bill revises various requirements to: establish a 4% minimum credit rate for certain projects, permit relocation costs to be taken into account as rehabilitation expenditures, repeal the qualified census tract population cap, require state housing credit agencies to make certain determinations regarding community revitalization plans, prohibit local approval and contribution requirements, increase the credit for certain projects designated to serve extremely low-income households, increase the credit for certain bond-financed projects designated by state agencies, and eliminate the basis reduction for low-income housing properties that receive certain energy-related tax credits and deductions. The bill also modifies requirements regarding the reconstruction or replacement period after a casualty loss, rights related to building purchases, the prohibition on claiming acquisition credits for properties placed in service in the previous 10 years, and projects that assist Native Americans.