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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 • • • • • 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