Affordable Housing Webinar: Low-Income Housing Tax Credits 101

Introduction

• Presenter: Elizabeth Harriger, partner and director of Affordable Housing Services at McConley & Asbury.
• Firm Overview: McConley & Asbury provides accounting and business advisory services with a focus on affordable housing.
• Series: This webinar is part of a three-part series on affordable housing.
  • Next: Affordable Housing Audit and Financial Statement Essentials (July 25th)
  • Final: Acquisition Rehab First Year Credits (August 1st)

McConley & Asbury Services

• Specializes in affordable housing since the late 1980s.
• Services include:
  • Annual audit and tax return preparation
  • 10% tests, 50% tests
  • Development cost certifications
  • Low-income housing tax credit consulting
  • Property compliance consulting (through M&L Compliance Management)

Webinar Structure

• Four Main Parts: Overview
  1. Overview of the program
  2. Pre-credit award processes
  3. Credit holding phase
  4. Calculation examples

Low-Income Housing Tax Credits (LIHTC)

• Created: By the 1986 Tax Act, with a 10-year credit period.
• Credit Period: 10 years, begins when credits are claimed.
• Compliance Period: 15 years total, requiring adherence to Section 42 of the IRS Code.
  • Acronym IRS (Income limits, Rent limits, Safety standards)
• Extended Use Period: Additional 15 years after compliance period.
  • Total commitment is often 30-40 years.

Types of Credits

• 9% credit for new construction or rehab.
• 4% credit for acquisition costs and tax-exempt bonds.

Key Participants in LIHTC Deals

• Tax credit allocating agency (e.g., PHFA in Pennsylvania)
• Owner/Developer
• Housing Consultant
• Investor
• Contractor, Architect, Management Agent, Attorney, Accountant

LIHTC as a Funding Source

• Process: Ownership entity (usually a Limited Partnership) applies for credits.
• Equity Investment: Investors buy credits for ownership interest.
• Funding Mix: Typically 50-60% investor equity.

Tax Credit Process Overview

1. Identify area and property.
2. Submit tax credit application.
3. Receive reservation of credits.
4. Potential carryover allocation.
5. Closing and construction.
6. Complete 10% test if applicable.
7. Development cost certification.
8. Issuance of IRS Form 8609.

Key Considerations

• Location Factors: Community support, tenant interest, neighborhood compatibility.
• Application Essentials: Follow state’s QAP, include market studies, appraisals, architectural plans.
• Construction Period: Typically 9-18 months, with staged equity payments.

Development Cost Certification & IRS Form 8609

• Certification: Accounting for total development costs to establish eligible basis.
• Form 8609: Key tax form, critical for claiming credits.
  • Contains irrevocable elections affecting compliance.

Calculating Credits

• Based on eligible basis, applicable fraction, and percentage (4% or 9%).
• Eligible Basis: Includes most depreciable costs; excludes land, certain fees, and furnishings.
• Applicable Fraction: Lesser of unit fraction or floor space fraction.
• Examples Provided: Demonstrated variations based on boost and applicable fraction.

Conclusion and Upcoming Events

• Questions & Answers on key issues.
• Upcoming Webinars on different aspects of affordable housing.
• Encouragement to contact for further questions or assistance.

Contact information and additional resources available on the McConley & Asbury website. A recording of the webinar will be posted online. CPE certificates to be emailed to attendees.