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HOUSING TAX CREDIT MODERNIZATION PROPOSALS
Richard S. Goldstein
Nixon Peabody LLP
October 19, 2007
Background
• With Democratic takeover of the House, new Chairmen, Rangel (Ways and Means) and Frank (Financial Services), agree to work on coordinating and improving the LIHTC
• Rangel staff person, Jon Sheiner, seeks input from industry groups on tax credit provisions
• Financial Services staff working on HUD and RHS coordination
Status
• Bills still being worked on
• Discussions with Joint Tax Committee on “scoring”
• Dates for introduction still unclear
Possible Tax Credit Proposals
• Allow the use of housing credits to offset corporate and individual AMT
– A number of corporate investors are or will be in AMT (including Fannie Mae)
– Proposal caught up in larger AMT issues
Possible Tax Credit Proposals
• Tax-exempt bond interest not a preference item for AMT
• Repeal recapture bonds
• Repeal ten percent carryover test
• Conform certain housing credit and bond rules
– Next available unit rule
– Student definition
– Allow bonds to finance SROs
Possible Tax Credit Proposals
• Repeal the prohibition of use of credits with Section 8 moderate rehabilitation projects
• Allow states to increase eligible basis by up to 30% for properties that meet state-specified criteria
• Do not reduce eligible basis by interest reduction payments (IRPs) or rent subsidies
• Allow acquisition costs to qualify for the 9% credit
Possible Tax Credit Proposals
• Eliminate the concept of Below Market Federal Loans, i.e., all new construction and sub rehab projects get 9% credits, except if bond financed
• Allow income targeting of up to 80% of median income where severe housing shortage
– Not clear if offsetting lower targeting would be required
Possible Tax Credit Proposals
• Over-income tenants would be required to pay 30% of household income for rent
• Use different methodology to determine annual rent adjustments due to change in HUD calculation
– Most likely proposal involves using CPI to adjust rents
Possible Tax Credit Proposals
• Re-use tax-exempt bond authority if bonds are redeemed early (will not generate new credits)
• Fix credits at 4% and 9%
• Liberalize rules for community service facilities to be included in eligible basis
• Liberalize the “anti-churning” rules for acquisition credits from 10% to 50%
Other AHTCC Proposals
• Allow below AFR HOME-assisted properties located in QCTs or DDAs to receive the 30% basis boost
2 out of 3 Rule would become 3 out of 3:
– Below Market HOME Loan
– 9% Credits
– 30% Boost
Other AHTCC Proposals
• Do not reduce eligible basis by Historic Credits or Energy Credits
• Re-name the Low Income Housing Tax Credit the “Affordable Housing Tax Credit”
• Preferences for “first responders”, teachers and other groups allowed by the housing credit agency
Other AHTCC Proposals
• Allow housing credits to continue for properties suffering a casualty, even if not in a disaster area, if re-built in a reasonable time
• Repeal the ten year rule
Possible Proposals re HUD and Tax Credits
• Improve FHA processing procedures
• Eliminate subsidy layering review if only FHA insurance is only HUD program involved
• Eliminate or coordinate cost certifications
• Redefine “equity” to include tax credit equity for limited dividend limitation purposes
Possible Proposals re HUD and Tax Credits
• Eliminate equity escrow requirements
• Coordinate asset management requirements with housing credit agency compliance monitoring