Basics of Low-Income Housing Tax Credits

Report
Basics of IRS Code
Section 42
Low-Income Housing
Tax Credits
Introduction
What is NCHFA?
Why am I here?
What is the LIHTC?
§ 105-277.16
“[D]evelopment to which [NCHFA]
allocated a federal tax credit under
section 42 is designated a special class
of property under… the NC Constitution
and must be appraised, assessed, and
taxed in accordance with this section.”
§ 105-277.16
“The assessor must use the income
approach as the method of valuation
for property classified under this
section and must take rent restrictions
that apply to the property into
consideration in determining the
income attributable to the property.”
§ 105-277.16
“The assessor may not consider
income tax credits received under
section 42 or under G.S. 105-129.42 in
determining the income attributable
to the property.”
LIHTC housing is
Always rental
Many types of structures
Rehabilitation and new construction
2,000 units and 35 awards annually
Total of 50,000 units in 1,400 projects
Only awarded by NCHFA
IRS Code Section 42
Owners must follow rules on
– Income,
– Rent, and
– Suitability
Contained in recorded use agreement
NCHFA monitors and reports violations
to the IRS
IRS Code Section 42
Rent limit is actually a maximum
housing expense
Generally is 60% area median income
less utility allowance
Specifics are very complicated for
both AMI and utilities
IRS Code Section 42
Rules apply for 30 years
Are ways to exit, including foreclosure
NCHFA provides DoR with a list of
Section 42 properties
Includes all, with indicator of which
are added and removed
The List
Property Name
Auburn Spring
Auburn Trace Apartments
Graham Village Apts
Cannon Place
Westhampton Apts
Deerfield Crossing Apts
Mebane Mill Lofts
Ridgeway Apts
The Oaks
Ridgeview Apts
Highland Village
Maplewood Apts
Pine Ridge Place
Wyndsor Downs
Pine Terrace Apts
Laurel Commons Apts
Oak Hill
City
Burlington
Burlington
Graham
Graham
Mebane
Mebane
Mebane
Taylorsville
Taylorsville
Sparta
Sparta
Sparta
Polkton
Polkton
Wadesboro
Wadesboro
Wadesboro
County
Alamance
Alamance
Alamance
Alamance
Alamance
Alamance
Alamance
Alexander
Alexander
Alleghany
Alleghany
Alleghany
Anson
Anson
Anson
Anson
Anson
Cycle
2005
2005
1993
1997
1989
1996
2009
1987
1996
1988
1999
2001
1993
2004
2001
2001
2004
Address
2950 Crouse Lane
2944 Crouse Lane
920 E.Hanover Road
508 E.Parker Street
1015 Mebane Airport Road
600 Deerfield Trace
301 W Washington Street
First Ave Dr Se
100 2nd Avenue
218 E. Whitehead St
29 Highland Village Circle
273 Independence Road
401 Pine Ridge Place
11 Wyndsor Court
100 Pine Bluff Street
Burns Street
1331 North Greene Street
Zip
27215
27215
27253
27253
27302
27302
27302
28681
28681
28675
28675
28675
28135
28135
28170
28170
28170
Units Removed
48
80
50
74
40
118
75
32
40
36
30
30
16
32
24
24
72
Added
1
Common issues
Not all affordable projects qualify,
some are only in other programs
Changes, new and removed
How to value- NCHFA is not in a
position to advise
Always welcome to ask questions
919.877.5645 [email protected]
How do LIHTCs make
housing affordable?
YIKES!
Actually has a simple
explanation:
Funds invested for the tax credit
partially replace loan financing
But what does that mean?
Loans have to be
repaid (usually)
A 36 unit apartment complex costs
$3,380,000 to build
Borrow $3,080,000 from bank
(the rest from an investor)
Monthly payment of $24,228
That’s $673 per household
every month!
If the project has
Housing Credits…
Whoever owns the building avoids
$2,592,000 in taxes over 10 years
Amount calculated on depreciable
items (bulldozer test)
Determined up-front
What the rest of us
get for this tax break
For every dollar of the $2,592,000 a
large company makes an investment
Around $0.85 per $1 in tax reduction
Thus $0.15 better off; expects no
other return
Now time for a little
math…
• “price” x tax credits = investment
• $0.85 x $2,592,000 = $2,203,200
Still a $3.38 million project
• cost – investment = loan amount
• $3.38M - $2.20M = $1.18M loan
Finally the conclusion
Monthly payment on a $1,176,800 loan
is $9,257, which = $257/unit
If built without tax credits monthly
payment is $24,228, or $673/unit
Investment saves tenant households
$416 each month
Summary of the
numbers
MARKET
TAX CREDIT
Cost
$3,380,000
Invest
$300,000
Loan
$3,080,000
Payment
$24,228
Units
36
Per unit
$673
$3,380,000
$2,203,200
$1,176,800
$9,257
36
$257
Savings
$416

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