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PISD & Qualification Issues. Michael Kotin Kay-Kay Realty Corp. 2007. Placed-in-Service Dates. Placed-in-Service Dates. Two Types of Developments:. Placed-in-Service Dates. Two Types of Developments: New Construction. Placed-in-Service Dates. Two Types of Developments: New Construction

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pisd qualification issues

PISD & Qualification Issues

Michael Kotin

Kay-Kay Realty Corp.2007

placed in service dates1
Placed-in-Service Dates

Two Types of Developments:

placed in service dates2
Placed-in-Service Dates

Two Types of Developments:

  • New Construction
placed in service dates3
Placed-in-Service Dates

Two Types of Developments:

  • New Construction
  • Acquisition / Rehab
placed in service dates5
New Construction

By December 31st of year which is 2 years from allocation year.

Placed-in-Service Dates
placed in service dates6
New Construction

By December 31st of year which is 2 years from allocation year.

Example: if allocation received in 2006, PISD must occur before December 31, 2008.

Placed-in-Service Dates
placed in service dates7
New Construction

By December 31st of year which is 2 years from allocation year.

Defined statutorily by first certificate of occupancy in each building.

Placed-in-Service Dates
placed in service dates8
New Construction

By December 31st of year which is 2 years from allocation year.

Defined statutorily by first certificate of occupancy in each building.

May vary from building to building.

Placed-in-Service Dates
placed in service dates9
New Construction

By December 31st of year which is 2 years from allocation year.

Defined statutorily by first certificate of occupancy in each building.

Occupancy cannot predate PISD.

Placed-in-Service Dates
placed in service dates12
Acquisition / Rehab

Date chosen by Owner.

PISD election need not be made until filing due date of tax return for year units are placed in service.

Placed-in-Service Dates
placed in service dates13
Acquisition / Rehab

Date chosen by Owner.

Not dictated by Certificate of Occupancy.

Placed-in-Service Dates
placed in service dates14
Acquisition / Rehab

Date chosen by Owner.

Not dictated by Certificate of Occupancy

Rehab need not be completed.

Placed-in-Service Dates
placed in service dates15
Acquisition / Rehab

Date chosen by Owner.

Not dictated by Certificate of Occupancy

Rehab need not be completed.

At least one unit in each building must be suitable for occupancy.

Placed-in-Service Dates
placed in service dates16
Acquisition / Rehab

Date chosen by Owner.

Not dictated by Certificate of Occupancy.

Rehab need not be completed

Tenancies may predate PISD.

Placed-in-Service Dates
acquisition rehab1
Acquisition / Rehab

Choice of PISD impacts:

acquisition rehab2
Acquisition / Rehab

Choice of PISD impacts:

  • Aggregation period for expenses.
acquisition rehab3
Acquisition / Rehab

Choice of PISD impacts:

  • Aggregation period for expenses.
  • Capitalization period for construction interest.
acquisition rehab4
Acquisition / Rehab

Choice of PISD impacts:

  • Aggregation period for expenses.
  • Capitalization period for construction interest.
  • Applicable credit percentage.
acquisition rehab5
Acquisition / Rehab

Choice of PISD impacts:

  • Aggregation period for expenses.
  • Capitalization period for construction interest.
  • Applicable credit percentage.
  • Start period for credits.
acquisition rehab7
Aggregation period for expenses:

Generally, rehab costs may be aggregated for 24 month period prior to PISD.

Acquisition / Rehab
acquisition rehab8
Aggregation period for expenses:

Generally, rehab costs may be aggregated for 24 month period prior to PISD.

PLUS

Acquisition / Rehab
acquisition rehab9
Aggregation period for expenses:

Generally, rehab costs may be aggregated for 24 month period prior to PISD.

PLUS

Costs incurred through the end of the owner’s taxable year.

Acquisition / Rehab
acquisition rehab11
Aggregation period for construction interest:

Generally, may capitalize interest until property is placed in service.

Acquisition / Rehab
acquisition rehab12
Aggregation period for construction interest:

Generally, may capitalize interest until property is placed in service.

For “automatic” credits associated with tax exempt bonds, no limitation to eligible basis / available credits.

Acquisition / Rehab
acquisition rehab13
Aggregation period for construction interest:

Generally, may capitalize interest until property is placed in service.

For “automatic” credits associated with tax exempt bonds, no limitation to eligible basis / available credits.

Best to delay PISD as long as possible in order to increase total eligible basis.

Acquisition / Rehab
acquisition rehab14
Aggregation period for construction interest:

Generally, may capitalize interest until property is placed in service.

For “automatic” credits associated with tax exempt bonds, no limitation to eligible basis / available credits.

Best to delay PISD as long as possible in order to increase total eligible basis.

Careful to meet 50% test.

Acquisition / Rehab
acquisition rehab16
Applicable credit percentage:

PISD may be chosen by taxpayer after end of year.

Acquisition / Rehab
acquisition rehab17
Applicable credit percentage:

PISD may be chosen by taxpayer after end of year.

Chosen after all monthly credit percentages for year have been published.

Acquisition / Rehab
acquisition rehab18
Applicable credit percentage:

PISD may be chosen by taxpayer after end of year.

Chosen after all monthly credit percentages for year have been published.

May choose the month with the highest published credit percentage.

Acquisition / Rehab
acquisition rehab20
Start period for credits:

“Look back” applies no matter when in year units are placed in service.

Acquisition / Rehab
acquisition rehab21
Start period for credits:

“Look back” applies no matter when in year units are placed in service.

“Look back” goes back to LATTER of:

Acquisition / Rehab
acquisition rehab22
Start period for credits:

“Look back” applies no matter when in year units are placed in service.

“Look back” goes back to LATTER of:

1st day of taxpayer’s taxable year, or

Acquisition / Rehab
acquisition rehab23
Start period for credits:

“Look back” applies no matter when in year units are placed in service.

“Look back” goes back to LATTER of:

1st day of taxpayer’s taxable year, or

Acquisition date.

Acquisition / Rehab
example2
Assumptions:

One building project (for convenience).

Example
example3
Assumptions:

One building project (for convenience).

Calendar year taxpayer.

Example
example4
Assumptions:

One building project (for convenience).

Calendar year taxpayer.

Property acquired July 15, 2006.

Example
example5
Assumptions:

Placed in service October, 2006:

Example
example6
Assumptions:

Placed in service October, 2006:

Aggregation of costs through December 31, 2006.

Capitalization of construction interest through October, 2006 at the latest (generally).

Credit percentage for month of October, 2006 used.

Credits may commence as early as August, 2006.

Example
example7
Assumptions:

Placed in service October, 2007:

Aggregation of costs through December 31, 2007.

Capitalization of construction interest through October, 2007 at the latest (generally)

Credit percentage for month of October, 2007 used.

Credits may commence as early as January, 2007.

Example
example8
Assumptions:

Placed in service October, 2008:

Aggregation of costs through December 31, 2008 except that costs incurred from July, 2006 through October, 2006 may not be included.

Capitalization of construction interest through October, 2008 at the latest (generally).

Credit percentage for month of October, 2008 used.

Credits may commence as early as January, 2008.

Example
tenant qualification2
Qualification may predate PISD.

Qualification may predate “look back”.

Tenant Qualification
tenant qualification3
Qualification may predate PISD.

Qualification may predate “look back”.

Qualification may NOT predate acquisition date.

Tenant Qualification
tenant qualification4
Qualification may predate PISD.

Qualification may predate “look back”.

Qualification may NOT predate acquisition date.

Recertification at PISD or “look back” date is NOT required.

Tenant Qualification
rev proc 2003 82
Is a safe harbor provision.

Assumes tenant occupancy in advance of PISD or “Look back” date.

Is NOT a requirement.

Rev. Proc. 2003-82
rev proc 2003 821
Is designed to insure compliance with Next Available Unit Rule.

Relevant on mixed-income properties with buildings which have applicable fractions under 100%.

NOT applicable on 100% tax credit properties where ALL units are always rented to qualified households.

NOT relevant on buildings in mixed-income properties which have 100% applicable fractions.

Rev. Proc. 2003-82
rev proc 2003 822
Safe harbor provided if management “tests” eligibility of existing residents.

Test may be retroactive as long as retroactive compliance with NAU can be demonstrated.

Does NOT require that existing residents have incomes below either move-in or recertification limits.

Does NOT require that “test” be a fully documented recertification. Standard may be substantially less.

Rev. Proc. 2003-82
placed in service dates17
Placed-in-Service Dates

Other Considerations:

placed in service dates18
Placed-in-Service Dates

Two Types of Developments:

  • Investor in ownership
placed in service dates19
Placed-in-Service Dates

Two Types of Developments:

  • Investor in ownership
  • Syndicator secondary sale completed
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