HOUSING TAX CREDIT MODERNIZATION PROPOSALS

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HOUSING TAX CREDIT MODERNIZATION PROPOSALS

• Richard S. Goldstein
• Nixon Peabody LLP
• October 19, 2007

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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

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Status

• Bills still being worked on
• Discussions with Joint Tax Committee on scoring
• Dates for introduction still unclear

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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Possible Proposals re HUD and Tax Credits

• Eliminate equity escrow requirements
• Coordinate asset management requirements with
  housing credit agency compliance monitoring

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