Heather Plake

Report
Low Income Housing Tax Credits
Beyond the Basics
@dozcpa
Outline
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Credit Period versus Extended use period
Calculation of Low Income Housing Tax Credits
Tenant File Qualification
Upward and downward adjusters
Section 42 Recapture
Impact of New Repair Regulations on LIHTC
LIHTC Audit Technique Guide
Credit Period vs. Extended Use Period
• Credit Period – Section 42(f)(1)
 New Construction
 Acquisition/Rehabilitation – Section 42(f)(5)
• Extended Use Period – Section 42(h)(6)(D)
 Beginning on the 1st day in the compliance period on which such
building is part of a qualified low-income housing project, and
 Ending on the later of the date specified by such agency in such
agreement, or the date which is 15 years after the close of the
compliance period.
Calculation of Low Income Housing Tax Credits
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High Cost Area (QCT)
Applicable Fraction
70% P.V 9% Fixed vs. October 2014
Equity Pricing
LIHTC Example
Eligible Basis
High Cost Area (QCT)
Adjusted Eligible Basis
Applicable Fraction (% low income)
Total Qualified Basis
Applicable Percentage
Maximum Allowable Credit per year under IRS 42
Credit Period
Total Credit per Credit Period
Equity Pricing
Total Equity
Difference due to Applicable Percentable
70% P.V - 9% Fixed
1,000,000
130%
1,300,000
90%
1,170,000
9%
105,300
70% P.V. October 2014
1,000,000
130%
1,300,000
90%
1,170,000
7.35%
85,995
10
1,053,000
10
859,950
0.85
895,050
0.85
730,957.50
164,092.50
Tenant File Qualification
• New construction
• Rehabilitation
 120 day rule
• Initial Tenant File Qualification Report (AUP)
 Tenant Qualifications
 Elections
• Multiple Building Election
• Credit Period – Section 42(f)(1)
 Minimum Set-Aside
Upward and Downward Tax Credit Adjusters
• Causes
 Difference in eligible basis
 Timing of tenant move-in/re-certifications
• Impact on Internal Rate of Return
Section 42 - Recapture
• Recapture
 Qualified basis decrease from one year to the next
 Disposition of building
• Recapture is on the accelerated portion of the credits
• Recapture allocation method
• Provisions in Partnership/Operating Agreements
Recapture of accelerated credit - percentage
Tax Credit Recapture-Exceptions
• There are five general exceptions to the recapture rules:
 Posting a bond
• The Housing Act of 2008 eliminated the bond posting requirement for
interest in building disposed of after July 30, 2008.
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Originally claiming a reduced credit
Receiving no tax benefit for the credit
De minimis floor space changes
Disposition due to casualty losses
State Reported Noncompliance
• All noncompliance found by the state agency must be
reported to the IRS on Form 8823
 This is regardless of whether the item was later corrected unless,
• Noncompliance issues were identified and corrected by the owner prior to
notification of the upcoming review by the state agency, OR
• Noncompliance issues are related to state requirements that are in excess
of the Federal Requirements
December 31st an Important Date
• Under Section 42(f)(1), a building’s credit period is the period
of 10 years(120 months) beginning with the first day of the
taxable year in which the building is placed in service or the
succeeding tax year if the election under Section 42(f)(3)(8) is
made.
• Example: a building is damaged by a casualty and fully
restored within the same tax year, then there is no recapture
and no loss of credits
Impact of New Repair Regulations on LIHTC
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New Construction
Rehabilitation
Allocation of Building into 9 components
Partial disposition
Elections
LIHTC Audit Technique Guide
• Purpose of Guide
• Difference between 8823 Guide and LIHTC Guide
• Specific Sections
Questions?
Nancy Morton, [email protected]
Jeff Lathrop, [email protected]
Heather Plake, [email protected]
@dozcpa

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