Download Low Income Housing Tax Credits

Rodney Malone
One Line Task #1
Historic Tax Preservation Credits
The Federal Historic Preservation Tax Credit Program provides federal income-tax incentives for
the rehabilitation of historic income-producing properties. Under the provisions of the Tax
Reform Act of 1986, a 20% tax credit is available for the substantial rehabilitation of
commercial, agricultural, industrial, or rental residential buildings that are certified as historic.
The credit may be subtracted directly from federal income taxes owed by the owner.
The Benefits of this program
1. Encourages protection of Landmarks through the recognition, promotion and the
designation of historical buildings
2. It increases the value of the rehabbed property and the once ran down buildings are now
functioning returning them back to the tax roll
3. It upgraded neighborhoods and downtowns but also increases the housing available
within the community
To qualify for the Historic Tax Preservation credit you must have a certified historic structure.
To be certified the building that you own must be listed individually on the National Register of
Historic Places or be a contributing part of a historic district that is either certified as eligible on
the National Register or listed on the National Register. The building must also serve as incomeproducing, you know the city and state want those tax dollars. An example would be rental
residential, commercial, agricultural or industrial. The building must be rehabilitated in
accordance with the Secretary of the Interior’s “Standards of Rehabilitation,” and “Guidelines
for Rehabilitating Historic Buildings.” The kicker is that National Park Service determines if the
buildings meets the standards. The amount spent on the building must exceed the buildings
adjusted basis. You also have a timeline you have to complete the project. Projects have a
minimum expenditure test and that’s within a two year measuring period, but applicants can take
up to 5 years to complete a phased project. On how you can take 5 years to complete the project
if the plan specs are approved before construction starts.
So How does one go about getting this Tax Credit in Texas?
Texas Historical Commission
Application Process- Application must be submitted before work is completed
3 Parts to Application Process
1. Evaluation of Significance- determines if the building is eligible for the National Register
and thus the credits
2. Part Two describes the proposed work, and photographs are required showing the major
features of the building prior to work beginning
3. Part Three of the application is submitted upon completion of the rehabilitation
Processing Fee- The NPS charges a fee for reviewing applications, except is the project is under
$20,000. The fee is amount is dependent upon the cost of the Rehabilitation.
Fee Cost of Rehabilitation
$500 $20,000 to $99,999
$800 $100,000 to $499,999
$1,500 $500,000 to $999,999
$2,500 $1,000,000 or more
Here is the Address to the State Historic Preservation Office for Texas.
State Historic Preservation Officer Texas Historical Commission
P.O. Box 12276 Capitol Station
Austin, Texas 78711-2276 512-463-6100
Source Links:
http://www.irs.gov/pub/irs-mssp/rehab.pdf,
http://www.nps.gov/tps/tax-incentives/taxdocs/about-tax-incentives.pdf,
http://ohp.parks.ca.gov/?page_id=25007
Before
After
New Marker Tax Credits
The New Market Tax Credit Program also known as the (NTMC Program) was started by
Congress in the year 2000, as part of the Community Renewal Tax Relief Act of 2000.. The
object of this Program was to try to spur or get increased investments in low-income
communities. This program is tailored towards trying to get investments in low income
communities, so to receive the equity from investors, the NTMC Program allows individual and
corporate investors to receive a tax credit against their Federal Income Tax Return by getting
these investors to invest in Community Development Entities (CDE’s).This credit total 39% of
the original invest amount and the investor claims this investment over a 7 year period. Years 1-3
is 5%, 4-7 is 6%.
The idea of these investments are to help with material improvements in these communities and
to create jobs in these lower socio economic communities, which is the target area. This target
area is where there is at least 20% poverty level or the family income does not exceed 80% of the
median family income.
The City of Dallas has created the Dallas Development Fund (DDF), which started in 2009 as a
non-profit organization, for the purpose to seek New Markets Tax Credits allocation. The DDF
was awarded $55 million allocation under the NMTC program.
Great Success Story of the NMTC Program:
November 13 was the 2012 in Cincinnati, OH held a large gathering for the opening of the
76,000 square foot CityLink Center. Though the bulk of the financing came from private
investments, there was still a gap of $2.7 million filed through the NMTC Program. The Local
Initiatives Support Corporation of Greater Cincinnati and Northern Kentucky leveraged its
NMTC allocation to raise capital from PNC Bank in support of the 76,000 square foot CityLink
Center. The partnership not only bridged the construction gap but also established a firm
financial foundation for the CityLink Center, eliminated cash flow concerns and encouraged
further investment from the community. The funds from the NTMC financing allowed the
project to move forward without compromising funds that had been designated to support the
center’s initial years of operation.
One quote from this story that stood out to me was that of Kathy Schwab, who is the Executive
Director of LISC Greater Cincinnati & Northern Kentucky, “The Center will create a vibrant
community space while giving families struggling with job loss and poverty a toehold on
economic stability.” Also, Matt Josephs, LISC senior VP for policy and former senior policy
advisor at the Treasury Department’s Community Development Financial Institutions Fund said,
“New Markets investments are about creating jobs, revitalizing communities and raising
standards of living. CityLink clearly does all of that, and much more.”
The CityLink Center is located in Cincinnati’s West End where the poverty approaches 60% and
unemployment is 4 times the national average. CityLink offers a wide array of services in
tailored, individualized programs to meet the specific needs of each client. Whether it is GED
classes and works skills training, financial and career counseling, legal aid or assistance with
savings and credit rehabilitation, each client will be able to access the entire range of services
they need to get ahead in life in one convenient location. Also, they try to prohibit barriers to
success by having onsite child care, vision and dental services and a new car care program. This
program received donated cares and makes them available with low-cost, low-interest loans.
Also there are playgrounds, public spaces, cafés, to try to get the community involved.
Sources: http://nmtccoalition.org/2012/11/citylink-center-opens-in-cincinnati-to-combat-poverty/
http://www.irs.gov/pub/irs-utl/atgnmtc.pdf
http://ww.nyirn.org/sites/default/files/publications/PrattCenter_nmtc-report.pdf
Community Development Entities
A CDE is a domestic corporation or partnership that is an tunnel for the provisons of loans,
investments, or financial counselling in Low-Income Communities. There are benefits of being
certified as a CDE including being able to the CDFI to receive New Market Tax Credit (which I
explained above) allocation to offer its investors in exchange for equity investments in the CDE
and/or its subsidiaries: to receieve loans or investments from other CDE’s that received NMTC
allocations. Any duly existing entity that is treated for federal income tax purposes as a domestic
corporation or partnership may apply for certification as a CDE. For-profit and non-profit
organizations may be certified as a CDE.
How do you become eligible for a CDE?
You must become certified as a CDE, an organization must submit a CDE Certification
Application to the Fund for Review. The Application must demonstrate 3 things
1. A legal entity at the time of application
2. A primary mission of serving LICs
3. Maintain accountability to the residents of its targeted LICs
Sources: http://www.frbsf.org/publications/community/investments/0308/article1a.html
http://www.novoco.com/new_markets/resource_files/cde/cde_bystate_010106.pdf
http://www.areadevelopment.com/taxesIncentives/dec09/new-markets-tax-creditincentive1103.shtml
Rehabilitation Tax Credits
The Historical Tax Credit Program is jointly administered by the State Historic Preservation
Offices and the National Park Service. This Federal Program promotes rural and urban
revitalization but also creates incentives to promote and encourage private investments in
rehabbing historical buildings. This tax credit is catered to income producing historical buildings.
Prior to 1976, there was no financial incentive to preserve or rehabilitate historic buildings.
Actually there were laws before 1976 that gave incentives to knock down or dolomitize the
buildings, by allowing deductions related to the demolition of these buildings. Then came the
Tax Reform Act of 1976 which added the IRC section 19, which allowed tax payers to amortize
over a 60-month period certain expenditures to rehabilitate properties listed in the National
Register of Historic Places or property located in Registered Historic Districts and certified as
significant to the District. The 60-month amortization period was enhanced to a 10%
rehabilitation tax credit in 1978. In 1981, the Tax credit was expanded to a 3-tier credit by
Congress. 25% credit for Historical Rehabilitations, 20% Non Historic Rehabilitations Credit for
Buildings at least 40 years of old, and 15% credit for buildings at least 30 years old.
Owners of Rehabilitated buildings can claim a rehabilitation tax credit, if 3 criteria’s are met,
building must be substantially rehabilitated, must be places in service as a building before the
beginning of the rehabilitation work and must be considered a certified historic structure. Let me
define certified historic structure more in debt, its defined by the IRC section 47(C)(3)(A), which
primarily defines as any buildings listed in National Register, Located in a historic district and is
certified by the Secretary of the Interior of the Secretary of the Treasury as being of historical
significance to the district.
Federal Historic Preservation Tax Incentives
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Federal Tax Credit is worth 20 percent of the eligible rehabilitation costs
Building must be listed in the National Register of Historic Places
Building must be eligible for listings at the beginning of Rehabilitation project
o Need not to be officially listed until Tax Credit is claimed by the owner
Eligible Buildings and Costs
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Project must meet The Secretary of the Interior’s Standards for Rehabilitation
Tax Credit only for income producing properties

o Office, Retail, Hotel, Apartments, etc.
o Limited to Buildings only
Tax Credits design is for “Substantial Rehabilitation Projects”
o Eligible project costs generally must exceed the value of building itself at
beginning of project
 Not Including the Land
In 1981 the Federal Reform Act brought the best incentives up to date for this
1. Buildings at least 30 years old were allowed a 15 percent credit for qualifying rehabilitation
expenditures.
2. Buildings at least 40 years old were allowed a 20 percent credit for qualifying rehabilitation
expenditures.
3. Qualifying rehabilitation expenditures for a "Certified Historic Rehabilitation" were allowed
a 25 percent credit.
Important:
Tax Reform Act of 1986 stated that the investors with adjusted gross income of over
$250,000 may be precluded from taking any tax credit
Sources: http://www.irs.gov/pub/irs-mssp/rehab.pdf
http://nysparks.com/shpo/tax-credit-programs/
http://www.roanokeva.gov/85256a8d0062af37/vwContentByKey/N255RS9L166CFIREN
Low Income Housing Tax Credits
The Low Income Housing Tax Credit is used to finance the development of affordable rental
housing for low-income households. The program was created by the Tax Reform Act of 1986.
It was an alternate method to funding housing for low income and moderate households. Its first
year of operation was the year of 1987. A funny fact until the year 2000, each state received a
$1.25 tax credit per person it allocated towards funding housing that met the guidelines of the
program. It 2002 the states received $1.75 per person and now its adjusted for inflation, the
number is not certain. The development costs correlate to the tax credits and the tax credits are
used by the owner. The kicker is, often times, IRS regulation and program restrictions don’t
allow the owner of the property to use all of the tax credits. So to combat these restrictions, allot
LIHTC properties are under limited partnership groups that are assembled by syndicators. Many
private investors and companies particitpate within the LIHTC program, investing in housing
development and receiving credit against their federal liability in return. Tax Credits have to be
used for new rehabilitation, acquisition or construction but also
1.
20 percent or more of the residential units in the project are both rent restricted and
occupied by individuals whose income is 50 percent or less of area median gross income
or 40 percent or more of the residential units in the project are both rent restricted and
occupied by individuals whose income is 60 percent or less of area median gross income.
2.
When the LIHTC program began in 1987, properties receiving tax credits were required
to stay eligible for 15 years. This eligibility time period has since been increased to 30
years.
Community Development Block Grants
This program was created under Title 1 of the Housing and Developement Act of 1974. The
intended purpose of this program is to create viable communities, provide suitable environment
and decent housing, and to expand economic opportunities, catered to persons of low and
moderate income. The overseer of this program is HUD Housing or the technical term The U.S
Department of Housing and Urban Development. There are 2 parts to this program:
The Entitlement Program is directly administered to HUD- which the objective is to
provide Federal Funds to large metropolitan “entitlement” communities
2. The States and Small Cities Program- provides Federal Funds to states and Puerto Rico,
then the state in turn distributes funds to “non” entitlement communities, small cities,
towns
The distribution of the programs as far as funds are concerned, the Entitlement Program receives
approximately 70% and The States and Small Cities Program receives about 30% of the Funds
1.
Here are the Contacts
City of Dallas
Ms. Chan Williams, Assistant Director
Office of Budget and Management Services
1500 Marilla Street, 4FS
Dallas, TX 75201
Phone: (214) 670-3659
Fax: (214) 659-7008
Contact for State of Texas
Ms. Becky Dempsey, Director
State of Texas
Texas Department of Agriculture
P.O. Box 12847
Austin, TX 78711
Phone: (512) 463-6612
Fax: (888) 216-9867
Sources: http://portal.hud.gov/hudp
http://www.freddiemac.com/sell/expmkts/hudind.htmlortal/HUD?src=/states/texas/community/c
dbg
http://portal.hud.gov/hudportal/HUD?src=/program_offices/comm_planning/communitydevelop
ment/programs/108
Mortgage Guarantee Programs (through HUD)
This is a program thorugh the Housing and Community Development Act of 1992 that
established a Native American Housing Program- Section 184 of the Act- Administrered by
HUD through is Office of Native Americans Program (ONAP), Office of Loan Guarantee, which
is based in Denver.
Section 184 of this program:
1.
Gaurantees single family (1 to 4 family units) residential loans for homes located in
Indian or Alaska Native area, where the land may be tribal trust, allotted individual trust
or fee simple
HUD offers 100% loan guarantee and absence of income limits makes this the most affordable
loan program available in tribal areas. This program assures to the lenders that the loans will be
repaid in the case of foreclosure. Also there is a secondary market that exists for Section 184
loans. Fannie Mae, Freddie Mac, and state housing financial agencies will purchase some of the
Section 184 loans , and they can be securitized with other FHA-insured loans in Ginne Mae
Mortgage back securities. Individual Federal Home Loan Banks are exploring the purchase of
Section 184 loans throughout Mortgage Partnership Finance Programs. The loans, including
security give for the loan, may be sold or assigned by the supervised lender.
The Title VI loan guarantee program
Another opportunity for banks seeking to serve the housing needs of Indian country is the loan
guarantee program created under Title VI of the Native American Housing Assistance and SelfDetermination Act of 1996 (NAHASDA). Its objectives are to find innovative ways to develop
affordable housing units and encourage the investment and participation of banks that do not
customarily serve reservations and other Native American or Native Alaska areas. Eligible
borrowers are federally recognized Indian tribes or TDHEs that are approved recipients for
Indian Housing Block Grants (IHBGs) and cannot obtain financing without the guarantee. A
bank provides the financing and HUD provides a 95 percent guarantee of the principal and
interest due in the case of a default. Borrowers leverage their current and future IHBG funds by
pledging them as collateral and pledge any income derived from the sale or rental of properties
constructed with the Title VI guaranteed loan. Eligible lenders must meet the same criteria as for
the Section 184 program. A secondary market exists for these loans through the Fannie Mae
American Communities Fund and the Federal Home Loan Bank of Seattle.
Sources: http://www.occ.gov/static/community-affairs/community-developmentsnewsletter/Fall-5.pdf
Tax Increment Financing
Tax Increment Financing which is also known as TIF, allows or enables the economic officials
locally to collect the property tax revenue, attributed to increased assessed value resulting from
new investments with a designated area or TIF district. Once a TIF district is established the
property tax revenue attributable to new assessed value within a the district accrues to the
redevelopment district rather than the traditional taxing units (schools, civil city, township,
county etc).The new revenue can be used to pay for infrastructure or other improvements within
the designated area. Typically, TIF revenue is used to retire debt incurred to fund infrastructure
or other improvements but it has also been used on a cash basis. While the vast majority of TIF
districts in Indiana incur debt, many communities have used any additional TIF revenue beyond
that necessary for bond service to make further infrastructure investment in the TIF district.
Some states, TIF districts can be designated as either a
1. Redevelopment Area
2. Economic Development Area
Redevelopment Area- requires the finding of blight and is typically located in an older urban
area or Brownfield
Economic Development Area-requires the fining of significant economic benefit, jobs and
private investment, for the community
Also Greenfield development is typically located in a previously undeveloped area for uses such
as a new industrial park
The goal is to stimulate new private investment and thereby increase real estate values
Cedars TIF
Vickery Meadows TIF (Dallas)
Sources:
http://www.in.gov/indot/div/projects/i69planningtoolbox/_pdf/Tax%20Increment%20Financing.
pdf
http://www.lincolninst.edu/pubs/1078_Tax-Increment-Financing
http://www.ci.garland.tx.us/gov/lq/pcd/ed/partners/financing.asp
Superfund and Brownfield Grants (EPA)
The Environmental Protection Agency (EPA) defines a Brownfield as a property, the expansion,
redevelopment, or reuse of which may be complicated by the presence or potential presence of a
hazardous substance, pollutant, or contaminant. The EPA estimates that there are more than
450,000 brownfields in the U.S. In 1995, the EPA started the Brownfields Program which is
intended to empower states, communities, and other stakeholders in economic redevelopment to
work together to prevent, assess, safely clean up, and sustainably reuse brownfields. Cleaning
up and reinvesting in these properties increases local tax bases, facilitates job growth, utilizes
existing infrastructure, takes development pressures off of undeveloped, open land, and both
improves and protects the environment
Sources: http://www.ct.gov/dep/cwp/view.asp?A=2715&Q=489004
http://www.jstor.org/discover/10.2307/40924217?uid=3739920&uid=2129&uid=2&uid=70&uid
=4&uid=3739256&sid=21101366005893
http://www.whprp.org/nle/crsreports/04Oct/IB10114.pdf
Building Code in relationship to Adaptive Reuse
Adaptive reuse is the process of giving a new function to a building that originally had a
different purpose. When defining building codes, think of laws or rules enforced by the local
government built around the well being of people and buildings.
Sources:
http://readaptive.wordpress.com/2012/11/08/building-code-in-relationship-to-adaptive-reuse/
http://www.cctexas.com/files/g33/Sec%20%207%2012%20Adaptive%20Reuse%20Ordinance%
20YD-DWB%20FINAL.pdf
http://www.heimsath.com/blog-0/?Tag=Adaptive%20Re-use
Pedestrian Oriented Development
Pedestrian oriented development (POD) is a pedestrian friendly policy providing clear,
comfortable pedestrian access to commercial and residential areas and transit stops. POD is employed
through a combination of land design practices including compact development, mixed-use, traffic calming,
pedestrian – and public transit-orientation, and a mix of housing types.
Sources: http://www.lowellma.gov/depts/dpd/projects/tod
http://www.sandiego.gov/planning/documents/pdf/trans/todguide.pdf
http://nnecapa.org/blog/toolkit/location/new-hampshire/pedestrian-oriented-development/
Transit Oriented Development
Tramsit-Oriented Development or also can be known by its acronym TOD, is a community
development which combines a retail, office, housing and amongst other things, in a walkable
neighborhood. The neighborhood must be located with a ½ mile of a public transportation
system. People believe that the benefits of TOD create jobs.
Benefits of TOD
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Reduced household driving and thus lowered regional congestion, air pollution and greenhouse
gas emissions
Walkable communities that accommodate more healthy and active lifestyles
Increased transit ridership and fare revenue
Potential for added value created through increased and/or sustained property values where
transit investments have occurred
Improved access to jobs and economic opportunity for low-income people and working families
Expanded mobility choices that reduce dependence on the automobile, reduce transportation
costs and free up household income for other purposes
Sources: http://reconnectingamerica.org/what-we-do/what-is-tod/
http://www.vtpi.org/tdm/tdm45.htm
http://www.dart.org/about/tod.asp