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HOUSING TAX CREDITS COMPLIANCE MATTERS SONIA A. NAYAK NOVEMBER 1, 2007

HOUSING TAX CREDITS COMPLIANCE MATTERS SONIA A. NAYAK NOVEMBER 1, 2007. “Low Income Units”. Threshold of Election of: 20% of Units at 50% of Area Median Income (“AMI”), or 40% of Units at 60% of AMI Election Upon Placement in Service Must Meet Minimum by End of 1st Credit Year

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HOUSING TAX CREDITS COMPLIANCE MATTERS SONIA A. NAYAK NOVEMBER 1, 2007

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  1. HOUSING TAX CREDITS COMPLIANCE MATTERSSONIA A. NAYAKNOVEMBER 1, 2007

  2. “Low Income Units” • Threshold of Election of: • 20% of Units at 50% of Area Median Income (“AMI”), or • 40% of Units at 60% of AMI • Election Upon Placement in Service • Must Meet Minimum by End of 1st Credit Year • HUD Publishes Area Income Figures Annually

  3. Low Income Units (cont’d) • Adjustments for Family Size like Section 8 • Family of 4 Qualifies at 60% (50%) AMI • Family of 3 Qualifies at 54% (45%) AMI • Family of 2 Qualifies at 48% (40%) AMI • Single Household Qualifies at 42% (35%) AMI

  4. “Rent Restricted” • Rent (including utilities) Cannot Exceed 30% of Qualifying Income for Assumed Family Size; Based on Bedrooms Per Unit • Occupancy Assumptions: • One Person for Studio • 1.5 Persons per Bedroom

  5. Rent Calculation Example • Median Income = $60,000 • Two Bedroom Unit • 3 Person (2BR x 1.5) Income Limit = $32,400 • 30% of Income Limit = $9,720 • Monthly Rent (1/12) = $810

  6. Additional Rent Rules • Rent Limits Change Annually with Publication of New Area Median Incomes • Rent Will Not Decrease Below Original Floor • Gross Rent Does Not Include Section 8 (or Similar Rental Subsidies) • Gross Rent Must Include Utility Allowance for Tenant-Paid Utilities (i.e., Deduct from Rent to Owner)

  7. Continued Compliance • 15-Year “Compliance Period” • Continued Tenant Qualification: • 40% Increase Above Eligibility OK • Vacant Units/Over-Income Units OK if “Next Available Unit Rule” Followed

  8. Recapture • Recapture on Non-Compliance: • Accelerated Portion of Credit Recaptured (1/3 of Credit 1st 10 years, Decreasing Through Year 15) • If Minimum Set-Aside Fails, All Accelerated Credits Recaptured • Otherwise, Unit-by-Unit (Extent of Decrease in Qualified Basis)

  9. Recapture (cont’d) • Recapture on Change of More Than 1/3 in Ownership of Sale of Project • Bond Posting Procedure • New Owner Steps into Seller’s Shoes Upon Sale of Project

  10. Extended Use • Recorded “Extended Use Commitment” • “Extended Use Period”: • At Least 30 Years, May be Longer to Gain Points • Termination (with three-year vacancy de-control) • Upon Foreclosure • “Qualified Contract”

  11. “Qualified Contract” • State to Find Buyer If Requested by Owner After 14th Year Pursuant to “Qualified Contract” • Contract = • Outstanding Debt + • “Adjusted Investor Equity” + • Other Capital Contributions, Less • Cash Available for Distribution

  12. Qualified Contract (cont’d) • “Adjusted Investor Equity” = Initial Investor Equity to Project Inflated by COLA (up to 5% per year) • If No Buyer Found Within One Year, Property May Be Sold or Converted to Non-Low-Income Housing, Subject to 3-Year Vacancy Decontrol

  13. Compliance Monitoring • State Credit Agencies Monitor Projects • Owners’ Recordkeeping Requirements: • Number of Low-Income & Total Units • Income Certifications/Annual Re-Certifications & Backup Verifications • Qualified Basis & Eligible Basis Amounts • Rent Amounts • Owner Annual Compliance Certifications

  14. “Qualified Allocation Plans” • State Must Adopt QAP to Allocate Credits • QAP Must Set Forth Allocation Priorities • QAP Must Give Preference to: • Lowest Incomes • Longest Period of Low-Income Use • QCT Projects Contributing to a Concerted Revitalization Plan

  15. Additional QAP Rules • QAP Must Provide Procedure for Notifying IRS of Non-Compliance • Bond Financed Projects Must “Satisfy” QAP

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