Beyond the Basics dozcpa Outline Credit Period versus Extended use period Calculation of Low Income Housing Tax Credits Tenant File Qualification Upward and downward adjusters Section 42 Recapture ID: 634206
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Slide1
Low Income Housing Tax Credits
Beyond the Basics
@dozcpaSlide2
Outline
Credit Period versus Extended use periodCalculation of Low Income Housing Tax Credits
Tenant File QualificationUpward and downward adjustersSection 42 RecaptureImpact of New Repair Regulations on LIHTCLIHTC Audit Technique GuideSlide3
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.Slide4
Calculation of Low Income Housing Tax Credits
High Cost Area (QCT)
Applicable Fraction70% P.V 9% Fixed vs. October 2014Equity PricingSlide5
LIHTC ExampleSlide6
Tenant File Qualification
New constructionRehabilitation
120 day ruleInitial Tenant File Qualification Report (AUP)Tenant QualificationsElectionsMultiple Building ElectionCredit Period – Section 42(f)(1)
Minimum Set-AsideSlide7
Upward and Downward Tax Credit Adjusters
CausesDifference in eligible basisTiming of tenant move-in/re-certifications
Impact on Internal Rate of ReturnSlide8
Section 42 - Recapture
Recapture Qualified basis decrease from one year to the next
Disposition of buildingRecapture is on the accelerated portion of the creditsRecapture allocation methodProvisions in Partnership/Operating AgreementsSlide9
Recapture of accelerated credit - percentageSlide10
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.Originally claiming a reduced creditReceiving no tax benefit for the creditDe minimis floor space changesDisposition due to casualty lossesSlide11
State Reported Noncompliance
All noncompliance found by the state agency must be reported to the IRS on Form 8823This 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, ORNoncompliance issues are related to state requirements
that are in excess of the Federal RequirementsSlide12
December 31st
an Important DateUnder 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 creditsSlide13
Impact of New Repair Regulations on LIHTC
New ConstructionRehabilitation
Allocation of Building into 9 componentsPartial dispositionElectionsSlide14
LIHTC Audit Technique Guide
Purpose of GuideDifference between 8823 Guide and LIHTC GuideSpecific SectionsSlide15
Questions?
Nancy Morton,
nmorton@doz.netJeff Lathrop, jlathrop@doz.netHeather Plake, hplake@doz.net
@dozcpa