The final version of the federal tax bill, which is expected to be passed by Congress this week, maintains for the most part the current tax status of private activity bonds which are important to the construction industry. Private activity bonds provide tax credit incentives for investors for certain targeted developments such as affordable housing, economically distressed commercial development zones, historic building renovation, and infrastructure.
Earlier versions of the tax bill would have eliminated or sharply reduced funding for tax credit financing for affordable housing, which could have resulted in a reduction in building of up to 900,000 units over 10 years, according to some estimates. The current version restores funding for this tax credit financing, as well as funding for New Market Tax Credits, which allow private investors to secure tax credits for investment into economically disadvantaged areas.
However, because the tax bill cuts the federal corporate tax rate from 35% to 21%, there is some sentiment that the lower corporate tax rate could make tax credit investment less valuable and therefore dampen the volume of tax credit investment available from private industry. Some industry experts have estimated that this factor could result in a drop in production of affordable housing by as much as 15% annually.