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Using Historic Tax Credits to Promote Affordable Housing in New York City

Using Historic Tax Credits to Promote Affordable Housing in New York City. HTC/LIHTC Tax Credit Fundamentals. In both cases tax aspects administered by the IRS. HTC aspects jointly administered by NPS and State Historic Pres. Offices (SHPOs).

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Using Historic Tax Credits to Promote Affordable Housing in New York City

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  1. Using Historic Tax Credits to Promote Affordable Housing in New York City

  2. HTC/LIHTC Tax CreditFundamentals • In both cases tax aspects administered by the IRS. • HTC aspects jointly administered by NPS and State Historic Pres. Offices (SHPOs). • LIHTC administered by state housing agencies – in NYC that means: HPD or DHCR or NYS HFA. • HTC is the most important (in dollar volume) federal preservation program. • LIHTC most important federal affordable housing program.

  3. Cost per unit can be higher (particularly as calculated in some QAPs). Application of 106 standards triggered if federal funds are used; Secretary of the Interior’s standards if HTCs are used. Requirement to reduce eligible basis for the LIHTC by the amount of the HTCs (in a single entity structure). Challenges of using Historic Buildings for Affordable Housing

  4. Impact of HTC Basis Reduction on Equity Raised Sample Transaction Assumptions • $1,000,000 Qualified Basis (Eligible Basis x Applicable Fraction) • $950,000 Qualified Rehabilitation Expenditures (QREs) • LIHTC Pricing: $.75 per $1 of LIHTC • Historic Tax Credit Pricing: $.90 per $1 of HTC • LIHTC Credit Percentage: 8% (in each of 10 years) • HTC Credit Percentage: 20% (in year of placement in service)

  5. Impact of HTC Basis Reduction on Equity Raised LIHTC–Only Transaction • $1,000,000 x .08 x 10 x .75 = $600,000

  6. Impact of HTC Basis Reduction on Equity RaisedHTC–Only Transaction • $950,000 x .20 x .90 = $171,000

  7. Impact of HTC Basis Reduction on Equity RaisedTwinned LIHTC/HTC Transaction • HTC Equity: $950,000 x .20 = $190,000; $190,000 x .90 = $171,000 • LIHTC Equity: $810,000 ($1,000,000 - $190,000 ) x .08 x 10 x .75 = 486,000; • Aggregate Twinned LIHTC/HTC Equity = $486,000 + $171,000 = $657,000 (compare $600,000) • Net gain to LIHTC from HTC = $57,000 (less than 6% of LIHTC basis)

  8. Impact of HTC Basis Reduction on Equity RaisedLIHTC-Only Transaction in QCT/DDA • LIHTC Equity: $1,000,000 x 130% x .08 x 10 x .75 = $780,000

  9. Impact of HTC Basis Reduction on Equity RaisedTwinned LIHTC/HTCTransaction in QCT/DDA • HTC Equity: $950,000 x .20 = $190,000; $190,000 x .90 = $171,000 • LIHTC Equity: $810,000 ($1,000,000 - $190,000 ) x 130% x .08 x 10 x .75 = $631,800 • Aggregate Twinned Equity = $631,800 + $171,000 = $802,800 (compare $780,000) • Net Gain to LIHTC from HTC = $22,800 (2.3% of LIHTC basis)

  10. Duel owner structure can avoid basis reduction • Significant impact in LIHTC raise 631,000 → 780,000 780,000 + 171,000 = $951,000 • More complicated

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