In the second episode of Buchanan Ingersoll & Rooney & # 39; s
Tax Facts Podcast, Becky Lando and Michelle Yarbrough Korb
Discuss the latest developments in the use of low-income housing tax
Credits and how new changes have made these vehicles even more
attractive to investors.
Becky Lando is a Buchanan shareholder and a member of
Company real estate team. Michelle Yarbrough Korb is one too
Shareholder in Buchanan with a practice focused on what is affordable
Housing industry.
In the following, Lando and Yarbrough Korb discuss:
- What are Low Income Residential Tax Credits and How Do They Work?
- What changes in the latest COVID-19 aid bills?
Low Income Residential Tax Credits and How Changes Will Affect Those Who
want to invest in affordable housing. - How eviction moratoriums affect low-income residential tax credits
and whether it's good news or bad news for landlords. - The Housing Choice Voucher Program, commonly referred to as
Section 8, in which there were also changes due to the COVID-19 relief. - Expectations of future laws or changes that would arise
affordable housing more or less an attractive investment of a
Tax perspective. - The need to work with experienced consultants before getting in
the world of affordable housing investment.
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Listen to that
Podcast
Podcast transcript
Becky Lando: Hello and welcome back to Buchanan
Ingersoll & Rooneys Tax Facts, a podcast about
the world of tax law, real estate law and the changes associated with it
Companies and investors. I'm your host today, Becky Lando, a
Shareholder in Buchanan and member of our company's real estate
Team. My colleague Michelle Yarbrough Korb, a
Co-shareholder in Buchanan, whose activities relate to the
affordable housing industry. Michelle works with public developers
Housing agencies and their affiliates on the development,
Investing and leveraging low-income residential real estate and tax credits
Federal programs. Welcome Michelle.
Michelle Yarbrough Basket: Hello Becky.
Becky Lando: In the first episode of Tax
Facts, we talked about opportunity zones and a handful of
important dates and deadlines affecting many taxpayers. If you
I haven't listened to this yet. I recommend you check it out.
Today we're going to talk about another benefit for investors
and developers in multi-family and installation space, the
low-income residential property tax credit. Michelle before we dive into some
You can tell us about the details and the latest updates first
Listeners on what exactly the low-income residential property tax credit is and how
It works out?
Michelle Yarbrough Basket: Sure Becky, that would be me
happy too. So the low-income tax credit for residential real estate that exists too
known as LIHTC, is the largest production vehicle for affordable
Casing. It's a dollar-for-dollar federal tax reduction
Liability, and it is asserted pro rata over 10 years. You apply
for this allocation of low income tax credits from a state
Allocation agency, and each state has its own process and
Deadlines set out in its Qualified Allocation Plan. Now,
if you are fortunate enough to receive an allocation from low income individuals
You can monetize residential property tax credits by giving you capital
from investors, who in turn received the vast majority (around 99%)
tax credits, depreciation and losses. And most of them
Investors in this area are investors under the Community Reinvestment Act.
This is a highly regulated area that is of considerable concern
Restrictions on the use of property and income of the
Tenant for at least 30 years. Many parties are involved and need
be satisfied – from the IRS, the state licensing authority,
Investors, lenders, to name a few. So there are two types of
Low income residential property tax credit, 9% and 4%. The amount of
Credit is equal to the qualified base of the building multiplied by the
Credit percentage. Until 2015, the tax credit percentage was a
variable present value under both programs. So the 9% credit
supports new construction and renovation. It is high
competitive, and in 2015 it was set at 9%. The 4% loan support
a project that is funded by, or can be applied to, tax-exempt bonds
Building procurement costs with a renovation project.
Becky Lando: So you mentioned that there is one
government allocation, but just to be clear, these loans, though
They are allocated at the state level, they are still in effect
Federal tax credits? Is that right?
Michelle Yarbrough Basket: Yes that is
correct.
Becky Lando: So as far as I understand
COVID-19 Aid Act passed in late 2020
Some changes to the low income home tax credit. Can you explain
What were these changes and how might they affect them?
Are you interested in investing in affordable housing projects?
Michelle Yarbrough Basket: So the big news at
At the end of December, the end of December, the tax is 4%
The lending rate was set by the spending bill signed by Trump
December 27th. Previously, the rate was recently just above it
3%, so that's almost a percentage increase. And the benefit
To this end, many deals are now being made in markets that
just didn't support it before. Sometimes lower rent levels
or a lack of subsidies prevented these businesses from functioning. So we
Imagine that the supply will increase and we might see one too
Pricing implications that may lead to new investors entering here
Market.
Becky Lando: So, one of the other effects of
COVID-19 that many people are aware of is that more people than
ever struggling to pay rent. As a result, the CDC did as well
Some states and localities have introduced eviction moratoriums.
How is the situation here? Are landlords on the hook? And could
You talk about this issue in the context of affordable housing
Projects?
Michelle Yarbrough Basket: For sure. So a little
Story about the eviction moratorium. It started under the CARES Act
and initially it only applied to tenants in certain tenancies
Properties that either had federal aid or were related to the federal government
Financing. Then, last September, the CDC director issued it
a broader order that temporarily halted evictions. The consolidated
The Central Act has expanded this. And since then the CDC
The director renewed or extended this appointment twice. It was the most
recently expired on March 31st, but it's running now
until the end of June this year. Well, to be clear that
The moratorium is not a rent relief. The rent is still due. This is
merely to provide protection for struggling tenants who have done so
Given the explanation of your landlord that we cannot pay
Rental fee. And we try to avoid these situations where people
becoming homeless and increasing the spread of COVID-19. But these
Renters have yet to agree to their best efforts to find what to pay for
You can, and that includes applying for available funds. So the
Good news for landlords is that there are plenty of resources available.
Unfortunately, they are still being rolled out. So the first
Tranche was under the CARES Act. It provided a stream of funding for
Emergency rental. Then we had the consolidated one
Mittelgesetz, which also provided emergency aid for renting
for the payment of rent and rent arrears. And finally in
March with the American Rescue Plan, just over $ 21 billion
Emergency rental aid was pushed out. And this means
can be used to provide financial support from rent and supplies
Payments to other housing costs, and these can be provided
18 months. Now the American rescue plan has also been extended from the end
from this year to September 30 of next year to spend the deadline
the initial $ 25 billion tranche funded by in December
2020. So the hope is to maintain the ban, the eviction
Moratorium until the end of June that this rent relief from the
Stimulus packages get into the hands of the tenants and theirs
Landlord and this will stabilize the situation by making landlords
whole and give tenants extra time when things stabilize,
Vaccines are being rolled out to hopefully find and be able to work
Pay rent in the future.
Becky Lando: So, Michelle, another relevant one
The area affected by the COVID-19 discharge is the voucher for choosing an apartment
Program, commonly referred to as Section 8, where renters use
Coupons to pay part of your rent for a unit that is on
the private market. Can you explain the implications?
Michelle Yarbrough Basket: So many historically
Landlords have been reluctant to delve into Section 8, though
You are in a jurisdiction from which there is no source
Income protection and the choice is yours. But with the eviction
Moratoria, many landlords are struggling to collect rent. So the
Idea to receive part of the monthly rent on a regular basis
The form of a federal government funded voucher is
attractive because it is a stable flow of income. And that too
This benefits both developers and LIHTC investors.
Subsidized projects are more attractive. Project based rental
Support when vouchers are attached to a project rather than a project
The tenants will be very popular in the future. And there is more
good news on that front. More coupons will be available soon
available. Again in March American Rescue Plan for $ 5 billion
Housing choice vouchers have been authorized. Now these will go
to target groups that are at risk and on which they focus
Homelessness and fleeing violence. These are managed by
public housing associations across the country.
Becky Lando: Stick to this political issue
Move for a second, we know President Biden is working on this
Change course on a number of fronts from the previous administration.
Housing construction continues to be the subject of attention. Indeed there
was a congressional hearing on housing issues in mid-March, something
That hasn't happened since 2012. Can we expect a future?
Laws or changes that would make affordable housing more or more
less attractive investment from a tax or other point of view
Perspective?
Michelle Yarbrough Basket: So it will work
to develop more possibilities for developers and thus investors
to invest because with the fixed 4% low-income tax credit for residential property,
This will increase the number of transactions that use this
Recognition. An additional $ 1.2 billion was made available as a disaster
low-income tax credits for residential property. This affects 11 states as well
Puerto Rico experiencing disasters without COVID-19. And finally,
It is expected to improve the creditworthiness of affordable housing
The law will be reintroduced after the Easter break. Meanwhile
Text is not yet available, an earlier version of the bill would
Expansion of the home loan by 50%, among other things. So,
There are definitely a large number of other offers out there
the horizon and thus investment opportunities. And because of
This could lead to new investors deciding to move into low-income housing
Tax credit market due to this increased demand. But in addition
the potential for a corporate tax rate hike
it is proposed to finance the infrastructure of President Biden and
Climate protection proposal will make tax credits more attractive. So this is it
good for investors. The 4% LIHTC transactions are more attractive
Investments. They will involve less leverage and when the demand exceeds
Investment, lower prices. It will allow investors to be
more selective. More choice in terms of structure and partners
Strength. On the other hand, there will be more
Pressure on developers. While more offers may work out
(from a financial point of view) you need to focus
on the things that are important to these investors – guarantees,
Liquidity, reserves and longer visual inspections that escalate
Delivery costs, especially lumber, certain equipment and then
Extension of deadlines for COVID-19 logs or potential future
Problems like this pandemic.
Becky Lando: After all, this is understandably called
You have stated Michelle and extremely regulated environment.
And there is much to be done in carrying out developments and
Invest with these coveted tax credits. Can you explain
What is it about and why is it so important to work with it?
experienced attorney before jumping into an affordable apartment
Project?
Michelle Yarbrough Basket: For sure. So of course
The first thing that you will focus on is that it is you
Structure a transaction to get a good score as you need to get it
a reservation of low-income tax credits for residential real estate. And this process
and the application is different in each state, as we have spoken
Over. So you need to focus on getting these points. But provided
You get these low-income residential property tax credits
That's the bulk of the funding, it's not enough
solely to finance development. So if is a developer
Finding credits and grants, like project-based coupons, is
important to take into account all competing requirements and
Restrictions. That is why you need to work with someone who
understands the competing demands and all that "what."
ifs? "to achieve successful development
Related to this, the pandemic resulted in delays in closing which put a lot of pressure
of site control schedules that go beyond anything anyone expected
than they backed up these websites. For example, they have one
Option agreement. Fortunately, I've always advised mine
Customers are in control of the minimum requirements for your
state allocation authority and to expand viable options to expand
'Cause you never know what's gonna happen So as you can see this
Deals are much more than just tax issues. You need
Understand things that go beyond the tax to be in the
affordable housing industry.
Becky Lando: Michelle, this is one of those
interesting topic and one that is considered a top topic by lawmakers
as well as our customers and people with whom we deal in the in
Markets We Serve. I want to thank you for being on the podcast
Today to share a bit of your knowledge with our listeners. Listen
Please ensure these and future consequences of tax facts
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Buchanan Ingersoll & Rooney experience in tax and real
Probate, visit Buchanan Ingersoll & Rooney PC (bipc.com)
or more specifically, Affordable Housing Attorneys Buchanan Ingersoll
& Rooney PC (bipc.com). Until next time, I'll be Becky
Lando, along with my colleague at Buchanan Michelle Yarbrough Korb.
Thank you for listening to Tax Facts.
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