Housing Tax Credit and Multifamily Bond Provisions of HR 3221

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Housing Tax Credit and Multifamily Bond
Provisions of HR 3221THE HOUSING AND ECONOMIC
RECOVERY ACT OF 2008

• Richard S. Goldstein
• Forrest D. Milder
• November 20, 2008

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STATUS

• Passed by the House on July 23 by a vote of 272
  to152
• Final passage by the Senate on July 26, exactly
  as passed by the House

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STATUS (Cont.)

• President Bush signed the bill on July 30, 2008,
  which becomes the date of enactment for
  purposes of certain effective date provisions

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ALTERNATIVE MINIMUM TAX PROVISIONS (AMT)

• Housing credits and rehabilitation credits (under
  Section 47) may be used to offset AMTeffective
  for buildings placed in service after 2007 for
  housing credits and for rehabilitation
  expenditures incurred after 2007

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ALTERNATIVE MINIMUM TAX PROVISIONS (Cont.)

• Interest on residential rental bonds, mortgage
  revenue bonds and veterans mortgage bonds exempt
  from AMTeffective for bonds issued after
  enactment

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TEMPORARY INCREASE IN HOUSING CREDITS

• Per capita allocation increased by 0.20 for each
  of 2008 and 2009 to 2.20 in 2008 the 2009
  increase will be after the inflation adjustment
• Small state minimum increased by 10 for 2008 and
  2009

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EFFECTIVE DATES

• Unless otherwise noted, provisions will generally
  apply to buildings placed in service after date
  of enactment

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EFFECTIVE DATES (Cont.)

• Result is that projects that previously received
  credit allocations or bond financing will be able
  to take advantage of many of the bills
  provisions
• State credit agencies will need to adopt
  procedures to deal with potential additional
  credit allocations

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CREDIT RATE

• Provides a credit percentage of not less than 9,
  effective for buildings placed in service after
  enactment and before December 31, 2013 (i.e.,
  provision is sunsetted)
• IRS Notice 2008-106 permits owners to use the 9
  credit even if there was a prior lock-in at a
  lower rate

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CREDIT RATE (Cont.)

• Applies to non-federally subsidized new
  construction and substantial rehab
• No change for 4 credit for bond financed
  projects and acquisition of existing
  buildingsrate will continue to float, as under
  current law

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DEFINITION OF FEDERALLY SUBSIDIZED BUILDINGS

• Eliminates the concept of below market Federal
  loans
• Result is that new construction and sub rehab
  expenditures will qualify for 9 credit even if
  the project receives a below market Federal loan

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DEFINITION OF FEDERALLY SUBSIDIZED BUILDINGS
(Cont.)

• Tax-exempt bond financed projects still
  considered federally subsidized and therefore
  only eligible for the 4 credit
• Example HOPE VI and HOME financed projects will
  qualify for 9 credits even if interest rate is
  below the applicable Federal rate

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CHANGES TO DEFINITION OF ELIGIBLE BASIS

• Any buildings designated by housing credit agency
  as needing an increase in credit for financial
  feasibility may have eligible basis increased by
  agency by up to 30 by treating projects as being
  in difficult development areas - does NOT apply
  to bond financed projects

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CHANGES TO DEFINITION OF ELIGIBLE BASIS (Cont.)

• Joint Committee on Taxation (JCT) explanation
  provides that it is expected that housing credit
  agencies shall set standards for determining
  which areas shall be treated as Difficult
  Development Area (DDAs) and which projects shall
  receive additional credits in their QAP and
  publicly express reasons for increases

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CHANGES TO DEFINITION OF ELIGIBLE BASIS (Cont.)

• Minimum rehab threshold doubled to greater of
  6000 per low income unit (to be adjusted for
  inflation) or 20 of adjusted basis - effective
  for credit allocations made and bonds allocated
  after enactment

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CHANGES TO DEFINITION OF ELIGIBLE BASIS (Cont.)

• Allowable basis for community service facilities
  increased to 25 of first 15 Million of eligible
  basis plus 10 of additional basis

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CHANGES TO DEFINITION OF ELIGIBLE BASIS (Cont.)

• Treatment of federal grants is clarified
• Rental, operating and interest reduction payments
  not considered federal grants requiring basis
  reduction
• JCT report language clarifies that loans made
  from the proceeds of federal grants do not
  require basis reduction regardless of interest
  rate on loan (correcting a mistake in House
  report)

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CHANGES TO RULES FOR ACQUISITION CREDITS

• 10 percent related party rule (identity of
  interest between buyer and seller) liberalized to
  50

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CHANGES TO RULES FOR ACQUISITION CREDITS (Cont.)

• New exception to ten year rule the ten year rule
  does not apply to projects substantially
  assisted, financed or operated under HUD or RHS
  housing programs or similar state housing
  programsreplaces the Treasury waiver provisions
  re HUD and RHS properties

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SIMPLIFICATION PROVISIONS

• Prohibition on Section 8 Moderate Rehabilitation
  repealed
• Period for satisfying ten percent test for
  carryover allocations increased to one year from
  date of allocation

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REPEAL OF RECAPTURE BONDS

• Recapture bond requirement on disposition of
  buildings or interests therein is repealed
• Replaced with extended period for the statute of
  limitations3 years following the date that the
  taxpayer notifies Treasury of a recapture event

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REPEAL OF RECAPTURE BONDS (Cont.)

• Effective for dispositions after enactment and
  for dispositions prior to enactment if taxpayer
  elects application of new provisions
• Result is that outstanding bonds may be retired
  if taxpayer elects application of these
  provisions election procedure not clear
• Revenue Procedure 2008-60 provides procedures for
  taxpayers electing to discontinue prior recapture
  bonds

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MISCELLANEOUS CHANGES

• QAPs must take into account energy efficiency and
  historic nature of projectseffective for
  allocations after 2008
• Student rule amendednew exception for students
  previously in foster careeffective for
  determinations after enactment

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MISCELLANEOUS CHANGES (Cont.)

• Income limits for rural projects (as defined in
  Section 520 of Housing Act of 1949) measured by
  reference to greater of area median income or
  national non-metro median incomedoes not apply
  to bond financed projectseffective for income
  determinations made after enactment

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GENERAL PUBLIC USE

• Project may still qualify for housing credits
  even if occupancy restrictions or preferences
  that favor tenants with
• Special needs, or
• Are members of a specified group under federal or
  state housing program or policy that supports
  housing for such group, or
• Are involved in artistic or literary activities

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GENERAL PUBLIC USE (Cont.)

• However, housing must still be consistent with
  Federal Fair Housing laws
• JCT Report language clarifies housing for social
  organizations, employer sponsored housing and
  various health care facilities do not qualify for
  housing credits, maintaining present law on the
  subject

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GAO STUDY

• GAO must submit report to Congress by 12/31/2012
  regarding the implementation of changes made by
  the Act
• Study must include an analysis of distribution of
  credit allocations before and after the enactment
  of Act

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MULTIFAMILY HOUSING BONDS

• Multifamily housing bonds may be refunded (i.e.,
  no new volume cap required) if
• Refunding bond is issued within six months of
  repayment of loan made with original bonds
• Refunding bond issued within four years of
  original issuance
• Maturity of refunding bond not later than 34
  years after original bond is issued
• TEFRA approval process is followed

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MULTIFAMILY HOUSING BONDS (Cont.)

• Second (refunding bond) does not generate
  automatic credits
• Effective for repayments of bonds made after
  enactment

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HOUSING BOND AND CREDIT COORDINATION

• Next available unit rule for bond/credit projects
  applied on a building (not project) basis
• Housing credit student rules applied to bond
  projects

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HOUSING BOND AND CREDIT COORDINATION (Cont.)

• Housing credit single room occupancy rules
  applied to bond projects
• New rules effective for determinations after
  enactment with respect to bonds issued before and
  after enactment

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AREA MEDIAN INCOME RULES

• Income determinations for bond and housing credit
  projects may not decrease for any year after 2008
• For HUD Hold Harmless projects, median incomes
  may be increased by change in AMI from prior year

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AREA MEDIAN INCOME RULES (Cont.)

• HUD Hold Harmless projects are those whose
  incomes levels were not decreased after change in
  income determination methodology adopted by HUD
• Result is that in affected areas, income and rent
  determinations for older projects will be higher
  than new projects

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INCOME RE-CERTIFICATIONS

• Income re-certifications not required for 100
  low income projects for bond and credit
  projectseffective upon enactment for all such
  projects

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HOUSING BOND VOLUME CAP

• Volume cap for residential rental and mortgage
  revenue bonds increased by 11 Billion for 2008
• States share in increase on a per capita basis
• May be carried forward through 2010
• Bonds may be used to refinance sub-prime loans

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HOUSING CREDIT COORDINATION ACT

• Streamlines FHA multifamily insurance processing
  for Housing Credit transactions
• Allows project-based voucher terms of up to 15
  years

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HOUSING CREDIT COORDINATION ACT (Cont.)

• Requires state Housing Credit allocating agencies
  to report Housing Credit tenant data to HUD
  annually, including tenant race, ethnicity,
  family composition, age, income, use of rental
  assistance or other similar assistance,
  disability status, and monthly rental payments 

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HOUSING CREDIT COORDINATION ACT (Cont.)

• Allows PHAs to set project-based voucher rents at
  up to 110 percent of the HUD Fair Market rent in
  units with Housing Credits, even if this rent
  level exceeds the maximum Housing Credit rent,
  and allows PHAs to agree in advance not to reduce
  the rent below the initial rent during the term
  of the contract 

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HOUSING CREDIT COORDINATION ACT (Cont.)

• Eliminates the requirement that PHAs make a
  separate rent reasonableness determination for
  tenant-based vouchers used in Housing Credit
  units if the rent charged is at or below the rent
  for similarly assisted units not occupied by
  voucher holders 
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• Thank You
• Any Questions?

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