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Tax Cuts & Jobs Act – Impact on Bonds

The U.S. House and Senate have now each passed the Tax Cuts and Jobs Act (H.R.1) and have sent the bill to President Trump’s desk for final passage.  The final bill is expected to cost nearly $1.5 trillion over the next ten years and completely overhaul a tax code that hasn’t seen an update in nearly three decades.  While the bill has broad impacts on individuals and corporations across the financial spectrum, the following chart details changes to certain to tax-exempt bonds that may be of interest to you.

Item Current Law New Law under TCJA
Private Activity Bonds (PABs) Tax-exempt PABs can be issued to finance a number of private and public/private endeavors, including multifamily housing projects, single family housing loan programs, airports, water and sewer facilities, solid waste facilities, toll roads, certain manufacturing facilities and non-profit projects, including healthcare facilities, educational facilities and senior living facilities. The House bill eliminated PABs, but the TCJA conference report retains current law.
Advance Refunding of Governmental Bonds and 501(c)(3) Bonds Governmental bonds and 501(c)(3) bonds are eligible for one advance refunding, i.e., a refunding in which the refunded bond is not callable within 90 days of issuance of the refunding bond and an escrow is funded to pay debt service on the refunded bond until the call date. TCJA eliminates advance refundings.
Qualified Tax Credit Bonds Holders of qualified tax credit bonds receive a tax credit instead of interest. Tax credit bonds can be issued to finance renewable and clean energy projects (clean renewable energy bonds and qualified energy conservation bonds) and educational facilities (qualified zone academy bonds and qualified school construction bonds). TCJA eliminates qualified tax credit bonds.
Tax-Exempt Bonds for Professional Sports Stadiums Tax-exempt bonds can be issued to finance stadiums used by a professional sports team if the team is not required to pay for its use of the stadium. The House bill prohibited tax-exempt financing for professional sports stadiums, but the TCJA conference report retains current law.
For a complete breakdown of the upcoming changes, click here.

If you have questions or concerns about any aspect of this legislation, please contact a member of our Public Finance Group.