HOUSING TAX CREDIT AND
MULTIFAMILY BOND PROVISIONS
OF HR 3221
(AS OF JULY 21, 2008)
Richard S. Goldstein
July 24, 2008
STATUS
• HR 3221 passed Senate on July 11, 2008 by a vote of 63-5
• Expected to be considered by the House on July 23
• LIHTC provisions contained in the Senate-passed bill
expected to be modified slightly by House and agreed to by
the Senate
• Overall bill will contain GSE “bailout” provisions and could
slow passage of the bill in the Senate
• Once passed by Congress, expectation is that President will
sign the bill
EFFECTIVE DATES
• Unless otherwise noted, provisions will generally
apply to buildings placed in service after date of
enactment (when the President signs the bill)
• Result is that projects which previously received
credit allocations or bond financing will be able to
take advantage of many of the bill’s provisions
• State credit agencies will need to adopt procedures
to deal with potential additional credit allocations
CREDIT RATE
• Provides a credit percentage of not less than 9%,
effective for buildings placed in service after
enactment and before December 31, 2013 (i.e.,
provision is “sunsetted”)
• Applies to non-federally subsidized new construction
and substantial rehab
• No change for “4%” credit for bond financed projects
and acquisition of existing buildings—rate will
continue to float as under current law
DEFINITION OF “FEDERALLY
SUBSIDIZED” BUILDINGS
• Eliminates the concept of “below market Federal loans”
• Result is that new construction and sub rehab expenditures
will qualify for 9% credit even if the project receives a below
market Federal loan
• Tax-exempt bond financed projects still considered federally
subsidized and therefore only eligible for the 4% credit
• Example: HOPE VI and HOME financed projects will qualify
for 9% credits even if interest rate is below the applicable
Federal rate
CHANGES TO DEFINITION
OF ELIGIBLE BASIS
• Any buildings designated by housing credit agency
as needing an increase in credit for financial
feasibility may have eligible basis increased by
agency by up to 30%
• Minimum rehab threshold doubled to greater of
$6000 per low income unit (to be adjusted for
inflation) or 20% of adjusted basis--effective for
allocations made and bonds issued after enactment
CHANGES TO DEFINITION OF ELIGIBLE
BASIS (CONTINUED)
• Allowable basis for community service facilities increased to
25% of first $15 Million of eligible basis plus 10% of additional
basis
• Treatment of federal grants is clarified:
– Rental, operating and interest reduction payments not
considered federal grants requiring basis reduction
– Joint Committee on Taxation report language to clarify that
loans made from the proceeds of federal grants do not
require basis reduction regardless of interest rate on loan
(correcting a mistake in House report)
– JCT report to state that provision intended to apply to grants
made before and after enactment
CHANGES TO RULES FOR ACQUISITION
CREDITS
• 10 percent related party rule (identity of interest
between buyer and seller) liberalized to 50%
• New exception to ten year rule— the ten year rule
does not apply to projects assisted, financed or
operated under HUD or RHS housing programs or
similar state housing programs
SIMPLICATION PROVISIONS
• Prohibition on Section 8 Moderate Rehabilitation
repealed
• Period for satisfying ten percent test for carryover
allocations increased to one year from date of
allocation
REPEAL OF RECAPTURE BONDS
• Recapture bond requirement on disposition of buildings or
interests therein is repealed
• Replaced with extended period for the statute of limitations—3
years following a recapture event
• Effective for dispositions after enactment and for dispositions
prior to enactment if taxpayer elects application of new
provisions
• Result is that outstanding bonds may be retired if taxpayer
elects application of these provisions
MISCELANEOUS CHANGES
• QAPs must take into account energy efficiency and historic
nature of projects—effective for allocations after 2008
• Student rule amended—new exception for students previously
in foster care—effective for determinations after enactment
• Income limits for rural projects (as defined in Section 520 of
Housing Act of 1949) measured by reference to greater of
area median income or national non-metro median income—
does not apply to bond financed projects—effective for
income determinations made after enactment
GENERAL PUBLIC USE
• Project may still qualify for housing credits even if occupancy
restrictions or preferences that favor tenants with:
– special needs or
– are members of a specified group under federal or state
housing program or policy that supports housing for such
group or
– are involved in artistic or literary activities
However, housing must still be consistent with federal Fair
Housing laws
MULTIFAMILY HOUSING BONDS
• Multifamily housing bonds may be refunded (i.e., no new
volume cap required) if:
– Refunding bond is issued within six months of repayment of
loan made with original bonds
– Refunding bond issued within four years of original issuance
– Maturity of refunding bond not later than 34 years after
original bond is issued
– TEFRA approval process is followed
Second (refunding bond) does NOT generate “automatic”
credits
HOUSING BOND AND CREDIT
COORDINATION
• Next available unit rule for bond/credit projects applied on a
building (not project) basis
• Housing credit student rules applied to bond projects
• Housing credit single room occupancy rules applied to bond
projects
• New rules effective for determinations after enactment with
respect to bonds issued before and after enactment
AREA MEDIAN INCOME RULES
• Income determinations for bond and housing credit projects
may not decrease for any year after 2008
• For “HUD Hold Harmless” projects, median incomes may be
increased by change in AMI from prior year
• HUD Hold Harmless projects are those whose incomes levels
were not decreased after change in income determination
methodology adopted by HUD
• Result is that in affected areas, income and rent
determinations for older projects will be higher than new
projects
INCOME RE-CERTIFICATIONS
• Income re-certifications not required for 100% low
income projects for bond and credit projects—
effective upon enactment for all such projects
HOUSING BOND VOLUME CAP
• Volume cap for residential rental and mortgage
revenue bonds increased by $11 Billion for 2008
• States share in increase on a per capita basis
• May be carried forward through 2010
• Bonds may be used to refinance sub-prime loans
ALTERNATIVE MINIMUM TAX
PROVISIONS
• Housing credits and rehabilitation credits (under
Section 47) may be used to offset AMT—effective
for buildings placed in service after 2007 for housing
credits and for rehabilitation expenditures incurred
after 2007
• Interest on residential rental bonds, mortgage
revenue bonds and veterans mortgage bonds
exempt from AMT—effective for bonds issued after
enactment