Download Low Income Units

HOUSING TAX CREDITS
COMPLIANCE MATTERS
SONIA A. NAYAK
NOVEMBER 1, 2007
“Low Income Units”
• Threshold of Election of:
– 20% of Units at 50% of Area Median Income (“AMI”), or
– 40% of Units at 60% of AMI
• Election Upon Placement in Service
• Must Meet Minimum by End of 1st Credit Year
• HUD Publishes Area Income Figures Annually
Low Income Units (cont’d)
• Adjustments for Family Size like Section 8
– Family of 4 Qualifies at 60% (50%) AMI
– Family of 3 Qualifies at 54% (45%) AMI
– Family of 2 Qualifies at 48% (40%) AMI
– Single Household Qualifies at 42% (35%) AMI
“Rent Restricted”
• Rent (including utilities) Cannot Exceed 30% of Qualifying Income for
Assumed Family Size; Based on Bedrooms Per Unit
• Occupancy Assumptions:
– One Person for Studio
– 1.5 Persons per Bedroom
Rent Calculation Example
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Median Income = $60,000
Two Bedroom Unit
3 Person (2BR x 1.5) Income Limit = $32,400
30% of Income Limit = $9,720
Monthly Rent (1/12) = $810
Additional Rent Rules
• Rent Limits Change Annually with Publication of New Area Median
Incomes
• Rent Will Not Decrease Below Original Floor
• Gross Rent Does Not Include Section 8 (or Similar Rental Subsidies)
• Gross Rent Must Include Utility Allowance for Tenant-Paid Utilities
(i.e., Deduct from Rent to Owner)
Continued Compliance
• 15-Year “Compliance Period”
• Continued Tenant Qualification:
– 40% Increase Above Eligibility OK
– Vacant Units/Over-Income Units OK if “Next Available Unit Rule”
Followed
Recapture
• Recapture on Non-Compliance:
– Accelerated Portion of Credit Recaptured (1/3 of Credit 1st 10
years, Decreasing Through Year 15)
– If Minimum Set-Aside Fails, All Accelerated Credits Recaptured
– Otherwise, Unit-by-Unit (Extent of Decrease in Qualified Basis)
Recapture (cont’d)
• Recapture on Change of More Than 1/3 in Ownership of Sale of
Project
• Bond Posting Procedure
• New Owner Steps into Seller’s Shoes Upon Sale of Project
Extended Use
• Recorded “Extended Use Commitment”
• “Extended Use Period”:
– At Least 30 Years, May be Longer to Gain Points
• Termination (with three-year vacancy de-control)
– Upon Foreclosure
– “Qualified Contract”
“Qualified Contract”
• State to Find Buyer If Requested by Owner After 14th Year Pursuant
to “Qualified Contract”
– Contract =
• Outstanding Debt +
• “Adjusted Investor Equity” +
• Other Capital Contributions, Less
• Cash Available for Distribution
Qualified Contract (cont’d)
• “Adjusted Investor Equity” = Initial Investor Equity to Project Inflated
by COLA (up to 5% per year)
• If No Buyer Found Within One Year, Property May Be Sold or
Converted to Non-Low-Income Housing, Subject to 3-Year Vacancy
Decontrol
Compliance Monitoring
• State Credit Agencies Monitor Projects
• Owners’ Recordkeeping Requirements:
– Number of Low-Income & Total Units
– Income Certifications/Annual Re-Certifications & Backup
Verifications
– Qualified Basis & Eligible Basis Amounts
– Rent Amounts
• Owner Annual Compliance Certifications
“Qualified Allocation Plans”
• State Must Adopt QAP to Allocate Credits
• QAP Must Set Forth Allocation Priorities
• QAP Must Give Preference to:
– Lowest Incomes
– Longest Period of Low-Income Use
– QCT Projects Contributing to a Concerted Revitalization Plan
Additional QAP Rules
• QAP Must Provide Procedure for Notifying IRS of Non-Compliance
• Bond Financed Projects Must “Satisfy” QAP