Maximizing Credits in Year 1 George F. Littlejohn, CPA, HCCP Novogradac & Company LLP george.littlejohn@novoco.com
Let s go over Basic Concepts Multiple Building Election Minimum Set-Aside PIS Date (When can you claim credits)
Multiple Building Election Each building is considered a separate PROJECT under IRC 42(g)(3)(D) unless each building that is (or will be) part of the multiple-building project is identified by checking yes on Form 8609, line 8b.
Multiple Building Election You can combine or not combine any subset of buildings to create more than one project, based on PIS date, credit period, or what works best for your particular situation.
Minimum Set-Aside At least 20% of the available units are rented to households with incomes not exceeding 50% of (AMGI) adjusted for family size. At least 40% of the available units are rented to households with incomes not exceeding 60% of (AMGI) adjusted for family size.
Minimum Set-Aside The Minimum Set-Aside Test is determined on a Project Basis Single Building Project Multiple Building Project
Placed-in-Service Date Placed-in-Service Date When the building is ready and available for its intended use. Temporary Certificate of Occupancy Certificate of Occupancy. Architect s Certificate of Substantial Completion.
Placed-in-Service Date Acquisition / Rehab Acquisition different depending on whether the existing building is occupied at time of purchase. Rehabilitation date chosen by the Taxpayer when the minimum expenditure test is met.
How are Credits Delivered First year rule - 42(f)(2)(A) Credit are eligible for each full month that the building is in service. Unit must be occupied by tenant by the last day of the month.
Credit Delivery Strategy Managing Construction PIS Date Can create more available months. Managing Lease-up Tenants in units Can create more credits in each month.
Construction / Lease-up The End of the Year is CRITICAL! Manage your construction and leaseup. Not only do you need to meet your minimum set-aside, you have to lease ALL of your low-income units by 12/31 to avoid 15-year or 2/3 credits.
Acq/Rehab 120 Day Rule Household certified within 120 days of acquisition, the effective date is the acquisition date. Household certified more than 120 days after the acquisition, the household is treated as a new move-in.
Acquisition / Rehab Credit Period for Acquisition not to begin before credit period for Rehab ( 42(f)(5). Rev. Proc. 2003-82
Acquisition / Rehab Under 42(e)(4)(B) - The applicable fraction for Rehab is the applicable fraction for the underlying building.
LI Units for Acq/Rehab Existing tenants, under Rev. Proc. 2003-82. New Move-ins Initial Income Certification. Transfers - income-qualified households that moved from other units within the project. ( Swap Status )
Acquisition / Rehab
Acq/Rehab Credit Strategy Understanding the Swap Status Rule Using the Multiple Building Election Move-ins vs. Transfers Vacant Unit Rule New Tenant Certification
Using Excess Eligible Basis Depends on State Agency and whether they adjust the credit percentage or eligible basis Line 2 and Line 3Aof the 8609
Using Excess Eligible Basis
Taxpayer 8609, Part II Taxpayer uses their actual eligible basis, NOT the amount from Part I
Taxpayer 8609-A Cannot create more credits per year than allocation, BUT can increase credits in first year.
Using Excess Eligible Basis Cannot create more credits per year than allocation, BUT can increase credits in first year.
Using Excess Eligible Basis Another Advantage May mitigate 15-year or 2/3rds Credit
Conclusion Communication Developer/Investor/Contractor/ Property Manager/Leasing Agent Strategy for Lease-Up Strategy for Construction / Rehab Plan your First Year Credit Delivery BEFORE the First Year
?? QUESTIONS?? George F. Littlejohn, CPA, HCCP Novogradac & Company LLP george.littlejohn@novoco.com (512) 340-0420