Obama issued his proposed FY 2012 budget on Feb. 15. There are several items of interest to apartment firms. Notably, this is just the starting point for negotiations with Congress over the final budget.
• Carried Interest. As expected, the President once again seeks to tax carried interest at ordinary income rates, a proposal NAA/NMHC have strongly opposed. The 112th Congress is not expected to pass this proposed tax increase.
• Energy Tax Incentives. As previously announced when Obama launched his Better Buildings Initiative, the proposed budget would convert the Energy Efficient Commercial Buildings tax deduction into a credit, making it more valuable to recipients.
• Low-Income Housing Tax Credit (LIHTC). The budget proposal would expand the LIHTC program by proposing an “income averaging” option that would allow properties to remain in compliance if 40 percent of the units serve people whose average income is below 60 percent of area median income (AMI). This would allow properties to serve some households above 60 percent AMI (but no more than 80 percent AMI) and would make it more feasible to do mixed-income housing in tax credit properties. (Current law requires that qualified units either be rented to 40 percent of households earning no more than 60 percent AMI or 20 percent at no more than 50 percent AMI.) Notably, this proposal requires separate tax legislation to change current law in addition to passage of the budget proposal.
• HUD Affordable Housing Programs. Although the overall HUD budget includes more than $1.1 billion in cuts, the Section 8 program increased $1 billion, or 6 percent, over FY 2010 levels. HUD says this funding level is sufficient to cover all existing vouchers. The budget proposal also explicitly notes the need to pass Section 8 reform legislation, including simplifying the rent-setting provisions. NAA/NMHC have long supported the Administration’s efforts to simplify and rationalize the Section 8 program.
• Mortgage Interest Deduction (MID). For the second year in a row, Obama would limit the MID and all other itemized deductions for households making over $250,000 ($200,000 for single taxpayers) by limiting it to the 28 percent bracket.
Details on the FY 2012 budget proposal, including Fact Sheets by HUD and the Treasury Departments, are available at
www.whitehouse.gov/omb/budget.