TAX CREDITS CREATE AFFORDABLE RENTAL HOUSING - 6

TAX CREDITS CREATE AFFORDABLE RENTAL HOUSING

By Steve Wright

The Trust says the legislation would:

• Lessen the rule that lowers tax benefits dollar-for-dollar according to the amount of credit taken when using the historic rehab credit.
• Increase the rehab credit rate to 40 percent for smaller projects in which the qualified rehabilitation expenditures do not exceed $2 million. This would target the incentive to “main street” type developments in which rehab credit costs are currently prohibitive.
• Permit the 10 percent credit to be claimed with respect to residential rental property. It is currently prohibited for projects that include dwellings.
• Change the definition of “older building” from “built before 1936” to any property “fifty years old or older.”
• Ease the rules governing non-profit deals so that more community-oriented projects may move forward.
• Boost by 130 percent the qualified rehabilitation expenditures on which the rehab credit can be claimed for buildings located in certain disinvested neighborhoods, difficult to develop areas and census tracts with high poverty rates.
• Remove the recapture clause -- requiring the payback of tax credits upon conversion of a tax credit property into a condo development -- to broaden the tax credit's use to condominium developments and in so doing, provide new support for the revitalization of urban neighborhoods nationwide.

TAX CREDITS CREATE AFFORDABLE RENTAL HOUSING - 5

TAX CREDITS CREATE AFFORDABLE RENTAL HOUSING

By Steve Wright

Using historic tax credits, Denver-based Mercy Housing retained original materials and features wherever possible and added new materials that blend with the area’s character.

The National Trust for Historic Preservation -- working with leading preservation organizations, developers, the financing community and tax credit users – has crafted “the Community Restoration and Revitalization Act.

The legislation, with sponsorship in the U.S. House and Senate, “is a package of amendments that would further the mission of the Historic Rehabilitation Tax Credit by spurring greater investment in smaller commercial projects and Main Street type properties in older neighborhoods – particularly where there is a critical need for housing and neighborhood reinvestment,” according to a briefing released by the Trust.

The idea is to make it easier to combine the rehab credit with the traditional Low-Income Housing Tax Credit to create projects that save historic structures while creating affordable rental units.

TAX CREDITS CREATE AFFORDABLE RENTAL HOUSING - 3

TAX CREDITS CREATE AFFORDABLE RENTAL HOUSING

By Steve Wright

The building had not fulfilled its affordable housing tax credit requirements of 15 years as low income housing before being allowed to charge market rate. If affordable rates had not continued, the owner would have faced procedures to recapture the Low Income Housing Tax Credits he had used to finance the project.

Friedman, who has experience in affordable housing, historic renovation and traditional development, teamed with Dublin Capital to secure: housing assistance credits through a nonprofit corporation, tax exempt bonds, city lien forgiveness plus federal and state LIHTC. The project was structured to also benefit from federal historic tax credits plus state of Missouri historic tax credits.

Friedman and Dublin contracted for a market study and appraisal and assembled a development team including a general contractor, architect and local legal counsel. Friedman and Dublin also assembled a group to provide the debt and equity needed to purchase the property plus additional land for adequate parking.

“Since the Winston Churchill House had Section 8 tenants, the development chose to find alternative housing for the residents during the gut rehab and pay the difference in rent. Friedman Group, working with a local project manager, assisted in relocating the qualified tenants,” explained Friedman, who also maintained a strong community relations campaign with city alderman and mayor’s office, a Congressman’s office, the police department, community religious groups and neighborhood associations.

TAX CREDITS CREATE AFFORDABLE RENTAL HOUSING

TAX CREDITS CREATE AFFORDABLE RENTAL HOUSING

By Steve Wright

In the never ending search to preserve and create more affordable rental housing, developers and nonprofits are finding ways to use more than the traditional Low-Income Housing Tax Credits (LIHTC) to get deals done.

Since 1986, the federal LIHTC Credit program has provided financing opportunities for developers to build units for low income renters.

In return for building affordable, investors receive a credit against their federal income tax liability. The program leverages roughly $6 billion in annual investment that produces more than 125,000 affordable apartments each year.

The federal government allocates LIHTC to each state based on population, with the current allocation at approximately $2 per person. Each state’s housing finance agency sets priorities then holds an annual competitive process to award the credits to the projects that best meet the priorities.

Investors use the tax credits to reduce federal tax liability. They often receive additional benefits of meeting local regulatory requirements and community development goals.

Low income tax credits typically cover about half of an affordable rental building’s total financing. The other half usually comes from city and county portions of U.S. Department of Housing and Urban Development HOME or Community Development Block Grant money, plus state or local bond money and housing trust funds.