What is a Low Income Housing Tax Credit LIHTC Section 42 of the Internal Revenue Code Allocated to entities that build or rehabilitate rental housing Claimed over 10 years Compliance period of 15 years ID: 739758
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Low Income Housing Tax CreditsSlide2
What is a Low Income Housing Tax Credit (LIHTC)?
Section 42 of the Internal Revenue Code
Allocated to entities that build or rehabilitate rental housing
Claimed over 10 years
Compliance period of 15 years
Must maintain affordable rents for a minimum of 30 years
Fills a funding gap between total development costs and loansSlide3
Types of LIHTC
9% Tax Credit
Competitive (Funding Rounds)
Can be used with any financing besides tax-exempt
Applications only accepted at specified times
Limited supply of credits
4%
Tax Credit
Non-competitive (may be applied for at any time)
Used with MSHDA Tax-Exempt Bond financing
No application deadlines
No hard limit on supply of creditsSlide4
How are LIHTC allocated at the Federal level?
Allocated to housing credit agencies of states
Based upon population, minimum floor
MSHDA is the housing credit agency in MI.
Approximately $22 million in LIHTC each yearSlide5
How are LIHTC allocated at the State (MSHDA) level?
Qualified Allocation Plan (QAP)
Competitive funding rounds
The QAP and Scoring Summary can be found on MSHDA website at
www.michigan.gov/mshdaSlide6
How is LIHTC typically used at the project level?
Limited Partnerships or Limited Liability Companies
LIHTC is allocated to the Owner LP/LLC
Investor Member is admitted into the Owner LP/LLC of the project
The Investor Member contributes cash equity to pay for development related costs and gets allocated a majority share of the LIHTC to offset their taxable income.Slide7
What are the benefits of LIHTC?
The project receives equity from the investor to build or rehab a project.
Allows a smaller mortgage and lower rents
The
Investor member uses the LIHTC to offset their taxable income.Slide8
Why doesn’t everyone develop LIHTC projects?
Cost
Complexity
Knowledge
ExperienceSlide9
What are some common mistakes within an application?
Missing documentation
Incorrect or inconsistent information
Missing clarification on complex issuesSlide10
How can I avoid these mistakes?
Ask ahead of time
2
nd
review by someone else
Double, triple, quadruple checkSlide11
QAP Threshold and Scoring Requirements
Site Control
PILOT/zoning
Environmental Study
Market Study
Green Building
Location
Experienced development team
Financial information
Cost containmentSlide12
Permanent Supportive Housing
MSHDA’s QAP awards 25% to PSH developments
Developments with at least 25% PSH units
Eligible tenants: persons with special needs or homeless under the HEARTH Act; 30% AMI
Require collaboration with a service organizationSlide13
MSHDA LIHTC TEAM
517-373-6007
www.michigan.gov/mshda