LIHTC: Getting It Right in Year One
If you read last month’s HMU article on LIHTC, you remember that I spent much of it applauding the program’s accomplishments as it turns 25. Most notably, the Low Income Housing Tax Credit program has become the longest running affordable housing production and preservation program ever implemented in this country.
This perspective, of course, is from the macroeconomic vantage point. Keeping in mind, however, that I speak for the National Center for Housing Management, which values site-management expertise, I realize that the microeconomic perspective is where we thrive and where the program really gets its thrust. If we are going to celebrate 25 years of success, we must remember that it all began with Year One at every single property representing the 2.4 million units that have been created or preserved under LIHTC since 1986. The importance of that first year cannot be stressed enough when it comes to success or failure for any tax credit development.
As a refresher for most of you, remember that the owner of a housing credit property has a two-year window of opportunity in terms of when they choose to begin the credit period. They can begin it the year that the building (or BIN) is placed in service or the following year, at which point Part II of the Form IRS 8609 is completed and credits can be claimed. In order to begin the credit period, a threshold requirement to meet the Minimum Set-Aside must be also be attained and other key decisions, such as whether to treat the buildings as part of a multiple-building project, must be made.
The end of the first year of the credit period is also the point in time when the qualified basis is established as a reflection of the applicable fraction (or percentage of tax credit qualified units) in combination with the eligible basis (or eligible development costs.) The manner in which all of these variables are recorded on the 8609 sets the standard which must be maintained in the years that follow, credit-wise and compliance-speaking, so again it is vitally important to get it right in Year One.
What does this mean for managers? It means you need to make a plan for Year One, especially if you are managing an Acquisition/Rehab project with an existing tenant base. In addition, you need to have all of the key documents on hand and familiarize yourself with their requirements. These should include the application made for tax credits, the Qualified Allocation Plan (QAP) for the year your credits were awarded, the Partnership Agreement, and the Extended Use Agreement or LURA. You should be able to produce a Qualified Occupancy Report summarizing the eligible occupants for the first year along with a Lease-Up Tracking Report for Acq/Rehab which reports monthly where households are moving to and from during the development phase. You need to know your targeted Applicable Fraction for each building and have a stated goal by which to reach it. You also need to have strong compliance occupancy training under your belt to be able to understand and manage all of the varying requirements from different interests. Finally, you must be able to properly qualify the units for LIHTC in order to fulfill the promises made by the owner to the state agency and the IRS, and for the investors to be able to claim the tax credits that they purchased to finance the development.
The longer I am in this business, the more I appreciate the demands placed on managers on a daily basis to do their jobs properly and well – especially during Year One. For more on this topic, check out our Tax Credit Specialist (TCS) course if you have not already or stay tuned for an upcoming webinar on Year One specifics.