Using Historic Tax Credits to Promote Affordable Housing

  • Slides: 10
Download presentation
Using Historic Tax Credits to Promote Affordable Housing in New York City

Using Historic Tax Credits to Promote Affordable Housing in New York City

HTC/LIHTC Tax Credit Fundamentals • In both cases tax aspects administered by the IRS.

HTC/LIHTC Tax Credit Fundamentals • In both cases tax aspects administered by the IRS. • HTC aspects jointly administered by NPS and State Historic Pres. Offices (SHPOs). • LIHTC administered by state housing agencies – in NYC that means: HPD or DHCR or NYS HFA. • HTC is the most important (in dollar volume) federal preservation program. • LIHTC most important federal affordable housing program.

Challenges of using Historic Buildings for Affordable Housing • Cost per unit can be

Challenges of using Historic Buildings for Affordable Housing • Cost per unit can be higher (particularly as calculated in some QAPs). • Application of 106 standards triggered if federal funds are used; Secretary of the Interior’s standards if HTCs are used. • Requirement to reduce eligible basis for the LIHTC by the amount of the HTCs (in a single entity structure).

Impact of HTC Basis Reduction on Equity Raised Sample Transaction Assumptions • $1, 000

Impact of HTC Basis Reduction on Equity Raised Sample Transaction Assumptions • $1, 000 Qualified Basis (Eligible Basis x Applicable Fraction) • $950, 000 Qualified Rehabilitation Expenditures (QREs) • LIHTC Pricing: $. 75 per $1 of LIHTC • Historic Tax Credit Pricing: $. 90 per $1 of HTC • LIHTC Credit Percentage: 8% (in each of 10 years) • HTC Credit Percentage: 20% (in year of placement in service)

Impact of HTC Basis Reduction on Equity Raised LIHTC–Only Transaction • $1, 000 x.

Impact of HTC Basis Reduction on Equity Raised LIHTC–Only Transaction • $1, 000 x. 08 x 10 x. 75 = $600, 000

Impact of HTC Basis Reduction on Equity Raised HTC–Only Transaction • $950, 000 x.

Impact of HTC Basis Reduction on Equity Raised HTC–Only Transaction • $950, 000 x. 20 x. 90 = $171, 000

Impact of HTC Basis Reduction on Equity Raised Twinned LIHTC/HTC Transaction • HTC Equity:

Impact of HTC Basis Reduction on Equity Raised Twinned LIHTC/HTC Transaction • HTC Equity: $950, 000 x. 20 = $190, 000; $190, 000 x. 90 = $171, 000 • LIHTC Equity: $810, 000 ($1, 000 - $190, 000 ) x. 08 x 10 x. 75 = 486, 000; • Aggregate Twinned LIHTC/HTC Equity = $486, 000 + $171, 000 = $657, 000 (compare $600, 000) • Net gain to LIHTC from HTC = $57, 000 (less than 6% of LIHTC basis)

Impact of HTC Basis Reduction on Equity Raised LIHTC-Only Transaction in QCT/DDA • LIHTC

Impact of HTC Basis Reduction on Equity Raised LIHTC-Only Transaction in QCT/DDA • LIHTC Equity: $1, 000 x 130% x. 08 x 10 x. 75 = $780, 000

Impact of HTC Basis Reduction on Equity Raised Twinned LIHTC/HTC Transaction in QCT/DDA •

Impact of HTC Basis Reduction on Equity Raised Twinned LIHTC/HTC Transaction in QCT/DDA • HTC Equity: $950, 000 x. 20 = $190, 000; $190, 000 x. 90 = $171, 000 • LIHTC Equity: $810, 000 ($1, 000 - $190, 000 ) x 130% x. 08 x 10 x. 75 = $631, 800 • Aggregate Twinned Equity = $631, 800 + $171, 000 = $802, 800 (compare $780, 000) • Net Gain to LIHTC from HTC = $22, 800 (2. 3% of LIHTC basis)

 • Duel owner structure can avoid basis reduction • Significant impact in LIHTC

• Duel owner structure can avoid basis reduction • Significant impact in LIHTC raise 631, 000 → 780, 000 + 171, 000 = $951, 000 • More complicated