PISD

1
PISD Qualification Issues

• Michael Kotin
• Kay-Kay Realty Corp.2007

2
Placed-in-Service Dates

3
Placed-in-Service Dates

• Two Types of Developments

4
Placed-in-Service Dates

• Two Types of Developments
• New Construction

5
Placed-in-Service Dates

• Two Types of Developments
• New Construction
• Acquisition / Rehab

6
Placed-in-Service Dates

• New Construction

7
Placed-in-Service Dates

• New Construction

• By December 31st of year which is 2 years from
  allocation year.

8
Placed-in-Service Dates

• New Construction

• By December 31st of year which is 2 years from
  allocation year.
• Example if allocation received in 2006, PISD
  must occur before December 31, 2008.

9
Placed-in-Service Dates

• New Construction

• By December 31st of year which is 2 years from
  allocation year.
• Defined statutorily by first certificate of
  occupancy in each building.

10
Placed-in-Service Dates

• New Construction

• By December 31st of year which is 2 years from
  allocation year.
• Defined statutorily by first certificate of
  occupancy in each building.
• May vary from building to building.

11
Placed-in-Service Dates

• New Construction

• By December 31st of year which is 2 years from
  allocation year.
• Defined statutorily by first certificate of
  occupancy in each building.
• Occupancy cannot predate PISD.

12
Placed-in-Service Dates

• Acquisition / Rehab

13
Placed-in-Service Dates

• Acquisition / Rehab

• Date chosen by Owner.

14
Placed-in-Service Dates

• Acquisition / Rehab

• Date chosen by Owner.
• PISD election need not be made until filing due
  date of tax return for year units are placed in
  service.

15
Placed-in-Service Dates

• Acquisition / Rehab

• Date chosen by Owner.
• Not dictated by Certificate of Occupancy.

16
Placed-in-Service Dates

• Acquisition / Rehab

• Date chosen by Owner.
• Not dictated by Certificate of Occupancy
• Rehab need not be completed.

17
Placed-in-Service Dates

• Acquisition / Rehab

• Date chosen by Owner.
• Not dictated by Certificate of Occupancy
• Rehab need not be completed.
• At least one unit in each building must be
  suitable for occupancy.

18
Placed-in-Service Dates

• Acquisition / Rehab

• Date chosen by Owner.
• Not dictated by Certificate of Occupancy.
• Rehab need not be completed
• Tenancies may predate PISD.

19
Acquisition / Rehab

20
Acquisition / Rehab

• Choice of PISD impacts

21
Acquisition / Rehab

• Choice of PISD impacts
• Aggregation period for expenses.

22
Acquisition / Rehab

• Choice of PISD impacts
• Aggregation period for expenses.
• Capitalization period for construction interest.

23
Acquisition / Rehab

• Choice of PISD impacts
• Aggregation period for expenses.
• Capitalization period for construction interest.
• Applicable credit percentage.

24
Acquisition / Rehab

• Choice of PISD impacts
• Aggregation period for expenses.
• Capitalization period for construction interest.
• Applicable credit percentage.
• Start period for credits.

25
Acquisition / Rehab

• Aggregation period for expenses

26
Acquisition / Rehab

• Aggregation period for expenses

• Generally, rehab costs may be aggregated for 24
  month period prior to PISD.

27
Acquisition / Rehab

• Aggregation period for expenses

• Generally, rehab costs may be aggregated for 24
  month period prior to PISD.
• PLUS

28
Acquisition / Rehab

• Aggregation period for expenses

• Generally, rehab costs may be aggregated for 24
  month period prior to PISD.
• PLUS
• Costs incurred through the end of the owners
  taxable year.

29
Acquisition / Rehab

• Aggregation period for construction interest

30
Acquisition / Rehab

• Aggregation period for construction interest

• Generally, may capitalize interest until property
  is placed in service.

31
Acquisition / Rehab

• Aggregation period for construction interest

• Generally, may capitalize interest until property
  is placed in service.
• For automatic credits associated with tax
  exempt bonds, no limitation to eligible basis /
  available credits.

32
Acquisition / Rehab

• Aggregation period for construction interest

• Generally, may capitalize interest until property
  is placed in service.
• For automatic credits associated with tax
  exempt bonds, no limitation to eligible basis /
  available credits.
• Best to delay PISD as long as possible in order
  to increase total eligible basis.

33
Acquisition / Rehab

• Aggregation period for construction interest

• Generally, may capitalize interest until property
  is placed in service.
• For automatic credits associated with tax
  exempt bonds, no limitation to eligible basis /
  available credits.
• Best to delay PISD as long as possible in order
  to increase total eligible basis.
• Careful to meet 50 test.

34
Acquisition / Rehab

• Applicable credit percentage

35
Acquisition / Rehab

• Applicable credit percentage

• PISD may be chosen by taxpayer after end of year.

36
Acquisition / Rehab

• Applicable credit percentage

• PISD may be chosen by taxpayer after end of year.
• Chosen after all monthly credit percentages for
  year have been published.

37
Acquisition / Rehab

• Applicable credit percentage

• PISD may be chosen by taxpayer after end of year.
• Chosen after all monthly credit percentages for
  year have been published.
• May choose the month with the highest published
  credit percentage.

38
Acquisition / Rehab

• Start period for credits

39
Acquisition / Rehab

• Start period for credits

• Look back applies no matter when in year units
  are placed in service.

40
Acquisition / Rehab

• Start period for credits

• Look back applies no matter when in year units
  are placed in service.
• Look back goes back to LATTER of

41
Acquisition / Rehab

• Start period for credits

• Look back applies no matter when in year units
  are placed in service.
• Look back goes back to LATTER of
• 1st day of taxpayers taxable year, or

42
Acquisition / Rehab

• Start period for credits

• Look back applies no matter when in year units
  are placed in service.
• Look back goes back to LATTER of
• 1st day of taxpayers taxable year, or
• Acquisition date.

43
Example
44
Example

• Assumptions

45
Example

• Assumptions
• One building project (for convenience).

46
Example

• Assumptions
• One building project (for convenience).
• Calendar year taxpayer.

47
Example

• Assumptions
• One building project (for convenience).
• Calendar year taxpayer.
• Property acquired July 15, 2006.

48
Example

• Assumptions
• Placed in service October, 2006

49
Example

• Assumptions
• Placed in service October, 2006

• Aggregation of costs through December 31, 2006.
• Capitalization of construction interest through
  October, 2006 at the latest (generally).
• Credit percentage for month of October, 2006
  used.
• Credits may commence as early as August, 2006.

50
Example

• Assumptions
• Placed in service October, 2007

• Aggregation of costs through December 31, 2007.
• Capitalization of construction interest through
  October, 2007 at the latest (generally)
• Credit percentage for month of October, 2007
  used.
• Credits may commence as early as January, 2007.

51
Example

• Assumptions
• Placed in service October, 2008

• Aggregation of costs through December 31, 2008
  except that costs incurred from July, 2006
  through October, 2006 may not be included.
• Capitalization of construction interest through
  October, 2008 at the latest (generally).
• Credit percentage for month of October, 2008
  used.
• Credits may commence as early as January, 2008.

52
Tenant Qualification
53
Tenant Qualification

• Qualification may predate PISD.

54
Tenant Qualification

• Qualification may predate PISD.
• Qualification may predate look back.

55
Tenant Qualification

• Qualification may predate PISD.
• Qualification may predate look back.
• Qualification may NOT predate acquisition date.

56
Tenant Qualification

• Qualification may predate PISD.
• Qualification may predate look back.
• Qualification may NOT predate acquisition date.

• Recertification at PISD or look back date is
  NOT required.

57
Rev. Proc. 2003-82

• Is a safe harbor provision.
• Assumes tenant occupancy in advance of PISD or
  Look back date.

• Is NOT a requirement.

58
Rev. Proc. 2003-82

• Is designed to insure compliance with Next
  Available Unit Rule.
• Relevant on mixed-income properties with
  buildings which have applicable fractions under
  100.

• NOT applicable on 100 tax credit properties
  where ALL units are always rented to qualified
  households.
• NOT relevant on buildings in mixed-income
  properties which have 100 applicable fractions.

59
Rev. Proc. 2003-82

• Safe harbor provided if management tests
  eligibility of existing residents.
• Test may be retroactive as long as retroactive
  compliance with NAU can be demonstrated.

• Does NOT require that existing residents have
  incomes below either move-in or recertification
  limits.
• Does NOT require that test be a fully
  documented recertification. Standard may be
  substantially less.

60
Placed-in-Service Dates

• Other Considerations

61
Placed-in-Service Dates

• Two Types of Developments
• Investor in ownership

62
Placed-in-Service Dates

• Two Types of Developments
• Investor in ownership
• Syndicator secondary sale completed