housing tax credits compliance matters sonia a nayak november 1 2007 n.
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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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low income units
“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
low income units cont d
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
rent restricted
“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
rent calculation example
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
additional rent rules
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)
continued compliance
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
recapture
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)
recapture cont d
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
extended use
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”
qualified contract
“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
qualified contract cont d
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
compliance monitoring
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
qualified allocation plans
“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
additional qap rules
Additional QAP Rules
  • QAP Must Provide Procedure for Notifying IRS of Non-Compliance
  • Bond Financed Projects Must “Satisfy” QAP