Exploring the Housing and Economic Recovery Act of 2008 August 5, 2008 Welcome and Thanks for Joining Us Michael D. Saad Partner – Columbus +1.614.365.2735 msaad@ssd.com
Our Program Today • Michael Saad: Opening Remarks • Holly Heer: Introduction and Overview of Changes • Michael Cullers: Provisions Dealing with Tax-Exempt Bonds • Harry P. Teichman: Allowing LIHTC and Rehab Credit Against AMT • Daniel N. Weber: Modified Substantial Rehabilitation Requirement • Matthew D. Rule: Simplification and Reform • Philip R. Westerman: Modifications to Definition of Eligible Basis • Michael Saad: Q&A and Wrap-Up Exploring the Housing and Economic Recovery Act of 2008
Exploring the Housing and Economic Recovery Act of 2008 August 5, 2008 Introduction and Overview of Changes Holly H. Heer Partner – Columbus +1.614.365.2716 hheer@ssd.com
Overview • The Housing Assistance Tax Act of 2008 consists of several different types of changes: – A. Fundamental changes to the nature of the program (such as changes to use of federal grants and definition of federal subsidies) – B. Changes that reaffirm the critical importance of state housing authorities in the low-income housing tax credit process (such as expansion to state ability to designate preferences for various programs for general public use; design state-determined DDAs) – C. Changes harmonizing many provisions between the tax- exempt bond programs and the tax-credit program Exploring the Housing and Economic Recovery Act of 2008
Overview – D. Changes making various technical corrections and modernizing various provisions (such as changes to acquisition credit rules and substantial rehabilitation and changing hold harmless rules regarding determination of AMI) – E. Changes refocusing the IRS away from certain audit issues that had the potential to undermine the industry (such as general public use rules and issues relating to whether certain interest bearing loans were true debt) – F. Changes broadening the potential investor market for the credit because of the ability to apply the credit against the alternative minimum tax Exploring the Housing and Economic Recovery Act of 2008
Overview • Effective Dates of Changes – A. Generally the effective dates of the various provisions are for buildings placed in service after the date of enactment – B. Other dates are tied to date of allocation or apply to any projects for all of calendar year 2008 – C. Generally effective date provisions appear to try not to prejudice existing projects while giving them the benefit of any changes Exploring the Housing and Economic Recovery Act of 2008
Increase in Credit Limits for 2008-2009 • The Act increases the per resident allocation authority by $.20 per resident for each of calendar years 2008-2009 (with a corresponding 10% increase to the small state minimum) • Implementation of this provision will require most states to amend their QAPs to permit additional allocations of credit for 2008, as well as allocation priorities for such credits (although historic nature and energy efficiency may not be taken into account until 2009 allocations. Additionally, states may identify buildings as located in a state-designated DDA at any time after enactment of the Act Exploring the Housing and Economic Recovery Act of 2008
Temporary Minimum Increase in Credit Rate • Credit rate for non-subsidized new buildings and rehabilitation costs shall be not less than 9% – Provision only applies to buildings placed in service after the date of enactment and through December 31, 2013 – Appears to permit all projects that have not been placed in service to qualify for the 9% rate, although projects that have irrevocably locked their credit rates may be impacted – Note potential impact on credit adjuster provisions if 9% rate is permitted for projects that had locked their credit rates – Note that there is no corresponding change for acquisition credits or bond-financed projects Exploring the Housing and Economic Recovery Act of 2008
Increase in Credit for Certain State Designated Buildings • States have authority to designate an individual building as requiring an increase in credits in order for the building to be treated as financially feasible – Such buildings will be treated as if they are in a difficult development area (DDA) and will receive a basis boost equal to 30% of their eligible basis (like other buildings in QCTs and DDAs per Section 42(d)(5)(C)) – States will be able to focus on particular types of projects that need additional funding or support to be financially feasible (such as historic tax credit projects that reduce low-income basis or projects with extremely low ongoing rents or serving special needs populations) Exploring the Housing and Economic Recovery Act of 2008
Increase in Credit Cont. – This designation is only available to projects that have gone through the competitive allocation process and not to tax-exempt bond financed projects Exploring the Housing and Economic Recovery Act of 2008
Other Simplification and Reforms • Repeals prohibition on use of the credit with any low- income housing building that received moderate rehabilitation assistance under section 8(e)(2) of the United States Housing Act of 1937 • Repeals bonding requirement for the disposition of a building or an interest therein – Bonds are no longer required on any disposition – Law continues to require that you have a reasonable expectation that the building will remain low-income, otherwise a taxpayer must pay any recapture owed at time of disposition Exploring the Housing and Economic Recovery Act of 2008
Other Simplification and Reform – On most foreclosures taxpayers will have to pay recapture for year of disposition – Statute of limitations is increased to three years from date taxpayer notifies the IRS of any reduction in basis subject to recapture – This provision is effective for dispositions prior to date of enactment if it was reasonably contemplated at the time of disposition that the project would remain low-income for the remainder of the project’s compliance period and the taxpayer elects to be governed by the provision Exploring the Housing and Economic Recovery Act of 2008
Other Simplification and Reform • Effective for allocations made after December 31, 2008, state housing authorities must take into account the historic nature and energy efficiency of a project in the state’s QAP • For non-bond projects, the income limitations for projects in rural areas will be measured by reference to the greater of area median gross income or national non- metropolitan median income. This provision applies to any determination made after the enactment of the Act Exploring the Housing and Economic Recovery Act of 2008
General Public Use • The Act clarifies the general public use requirements of Section 42(g), by providing that for all projects (regardless of the placed in service date) – A project will not fail to meet the general public use requirement solely because of occupancy restrictions or preferences that favor tenants with special needs, or who are members of a specified group under a federal or state program that supports housing for such specified groups or who are involved in artistic or literary activities – Projects still must comply with other federal laws (such as the Fair Housing Act) Exploring the Housing and Economic Recovery Act of 2008
General Public Use – This is a substantial reversal to recent IRS policy – This is another example of Congress clarifying that state agencies have the power to develop programs under their respective QAPs that meet special needs populations within their own states Exploring the Housing and Economic Recovery Act of 2008
Exploring the Housing and Economic Recovery Act of 2008 August 5, 2008 Provisions Dealing with Tax-Exempt Bonds Michael A. Cullers Principal – Cleveland +1.216.479.8477 mcullers@ssd.com
Provisions Dealing with Tax-Exempt Bonds • Interest on qualified mortgage bonds, qualified veterans’ mortgage bonds and exempt facility bonds issued for qualified residential rental projects is no longer subject to alternative minimum tax for individuals and corporations. – The AMT exemption takes effect for such bonds issued on or after July 30, 2008 – It has been reported that this new AMT exemption will lower coupon rates for state and local housing issuers by as much as 60 to 65 basis points – Applies both to new money and refunding bonds issued on or after July 30, 2008. In the case of refunding bonds, the AMT exemption applies only if the refunded bonds are AMT-exempt qualified mortgage bonds, qualified veterans’ mortgage bonds or exempt facility bonds issued for qualified residential rental projects. – Qualified mortgage bonds, qualified veterans’ mortgage bonds and exempt facility bonds for qualified residential rental projects cannot be advance refunded, they can only be currently refunded (i.e., the refunded bonds must be callable within 90 days after the issuance of the refunding bonds) Exploring the Housing and Economic Recovery Act of 2008
Recommend
More recommend
