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Tax Credit Basics
Source of Funds <ul><li>Internal Revenue Code, Section 42. </li></ul><ul><li>For 2007, the amount of tax credits issued to...
Qualified Allocation Plan (QAP) <ul><li>The QAP governs the annual distribution of tax credits. </li></ul><ul><li>Applican...
Types of Credits and Unit Requirements <ul><li>Types of Credits </li></ul><ul><ul><li>Annual “9% cycle” for construction (...
2007 Set-Asides <ul><ul><li>2007 Per Capita Allocation: $3,448,245 </li></ul></ul><ul><ul><li>At least 10% to Qualified No...
CRANE <ul><li>Acceptance into CRANE Program can occur only after an applicant has consulted with NIFA staff. </li></ul><ul...
LIHTC Fees <ul><li>Application Fee: Greater of 1% of annual credit request or $500. </li></ul><ul><li>Reservation/Carry-ov...
Commitment to Affordability <ul><li>Only get credits for the low income units (qualified basis). </li></ul><ul><li>Retain ...
Threshold Requirements <ul><li>Development Costs Determined </li></ul><ul><li>Preliminary Plans and Specifications </li></...
Threshold Requirements (Continued) <ul><li>Syndicator Interest Letter (valid for 6 months) </li></ul><ul><li>Construction/...
Ownership Structure <ul><li>The Limited Partner (L.P.) owns 99% or more and receives 99% or more of the credits. </li></ul...
Partners in a Typical Tax Credit Development Nebraska Department of Economic Development Lender City or other Local Funds ...
Calculations of Tax Credits & Equity <ul><li>Total Development Cost $3,000,000 </li></ul><ul><li>Less: Non-eligible (i.e. ...
In today’s market, the average development must have a least two or three sources of additional funding. <ul><li>Nebraska ...
Partnership Roles / Expectations <ul><li>Non-profit Roles </li></ul><ul><ul><li>Sponsor the Project </li></ul></ul><ul><ul...
Compliance Monitoring <ul><li>Annual Owner Certification of Continuing Compliance Report, utility allowance, summary repor...
Types of Developer Guarantees <ul><li>Construction Completion Guarantee (i.e. Lien Free Construction) </li></ul><ul><li>Op...
Role of Investor Partner <ul><li>Provide equity financing through sale of credits. </li></ul><ul><li>Monitor project durin...
NIFA Website http://www.nifa.org Questions? Robin Ambroz-Hollman, Manager of the LIHTC / CRANE Program 402-434-3900 [email...
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Transcript of "LIHTC PowerPoint.ppt"

  1. 1. Tax Credit Basics
  2. 2. Source of Funds <ul><li>Internal Revenue Code, Section 42. </li></ul><ul><li>For 2007, the amount of tax credits issued to each state is based on $1.95 per capita per year. </li></ul><ul><li>Amount to allocate in 2007: $3,448,245 </li></ul><ul><li>Generally over-subscribed: 3 to 4:1 </li></ul><ul><li>2007 Qualified Annual Plan – approved by Governor on 6/27/06 </li></ul><ul><li>2008 Qualified Annual Plan – will be presented for approval to the NIFA Board on 6/22/07. </li></ul>
  3. 3. Qualified Allocation Plan (QAP) <ul><li>The QAP governs the annual distribution of tax credits. </li></ul><ul><li>Applicants must meet threshold requirements. </li></ul><ul><li>Points awarded for specific items contained in the application. </li></ul><ul><li>The QAP and Application can be downloaded from NIFA website. </li></ul>
  4. 4. Types of Credits and Unit Requirements <ul><li>Types of Credits </li></ul><ul><ul><li>Annual “9% cycle” for construction (new/rehab) </li></ul></ul><ul><ul><li>4% credits with Tax Exempt Bonds </li></ul></ul><ul><ul><li>CRANE: Applications accepted monthly </li></ul></ul><ul><li>To Qualify </li></ul><ul><ul><li>20% of Units at 50% Area Median Income or </li></ul></ul><ul><ul><li>40% of Units at 60% Area Median Income </li></ul></ul>
  5. 5. 2007 Set-Asides <ul><ul><li>2007 Per Capita Allocation: $3,448,245 </li></ul></ul><ul><ul><li>At least 10% to Qualified Non-profits </li></ul></ul><ul><ul><li>50% Rural 50% Urban (MSAs) </li></ul></ul><ul><ul><li>$1 million for CRANE projects </li></ul></ul>
  6. 6. CRANE <ul><li>Acceptance into CRANE Program can occur only after an applicant has consulted with NIFA staff. </li></ul><ul><li>Eligible Projects </li></ul><ul><ul><li>Quality of life improvements (i.e. community facilities, needed social services or public infrastructure) </li></ul></ul><ul><ul><li>Housing for people living in, near or benefiting from a proposed economic development that includes job / wage creation and / or enhancement </li></ul></ul><ul><ul><li>Special Needs Housing </li></ul></ul><ul><ul><li>Native American Housing </li></ul></ul><ul><ul><li>Improvements in response to judicial findings (or settlement agreements or consent decrees) relating to housing deficiencies, housing discrimination or other housing issues </li></ul></ul><ul><ul><li>Improvements as part of a neighborhood redevelopment plan for which there is a significant and material public investment </li></ul></ul><ul><ul><li>Historic Preservation in combination with any of the above eligibility criteria </li></ul></ul>
  7. 7. LIHTC Fees <ul><li>Application Fee: Greater of 1% of annual credit request or $500. </li></ul><ul><li>Reservation/Carry-over Fee: 2% of annual credit request. </li></ul><ul><li>Allocation Fee: Due at Cost Certification: 2% of annual credit actually allocated. </li></ul><ul><li>Annual Compliance Fee: 2% of annual credit actually allocated. </li></ul>
  8. 8. Commitment to Affordability <ul><li>Only get credits for the low income units (qualified basis). </li></ul><ul><li>Retain affordability period for 15 year compliance period plus a 15 year extended use period. </li></ul><ul><li>Income and rent restrictions. </li></ul><ul><li>NIFA offers points for longer affordability periods. </li></ul>
  9. 9. Threshold Requirements <ul><li>Development Costs Determined </li></ul><ul><li>Preliminary Plans and Specifications </li></ul><ul><li>Site Control (valid for 90 days) </li></ul><ul><li>Zoning Approved (or conditional use permit) </li></ul><ul><li>Utilities are available and adequate </li></ul><ul><li>List of Board of Directors </li></ul><ul><li>State and/or Local Subsidies </li></ul>
  10. 10. Threshold Requirements (Continued) <ul><li>Syndicator Interest Letter (valid for 6 months) </li></ul><ul><li>Construction/Permanent Financing (valid for 6 months) </li></ul><ul><li>15 Year Operating Proforma </li></ul><ul><li>Site Specific Market Study </li></ul><ul><li>Pre-notification to the Mayor </li></ul><ul><li>Capital Needs Assessment (for Rehab Only) </li></ul>
  11. 11. Ownership Structure <ul><li>The Limited Partner (L.P.) owns 99% or more and receives 99% or more of the credits. </li></ul><ul><li>The L.P. pays generally between $.80 and $.85 per credit. </li></ul>
  12. 12. Partners in a Typical Tax Credit Development Nebraska Department of Economic Development Lender City or other Local Funds Developer Consultant Tax Credit Investor (Limited Partner) Non-profit or For Profit Sponsor (General Partner) NIFA New Limited Partnership (Project Owner)
  13. 13. Calculations of Tax Credits & Equity <ul><li>Total Development Cost $3,000,000 </li></ul><ul><li>Less: Non-eligible (i.e. land-soft cost) (200,000) </li></ul><ul><li>Eligible Basis $2,800,000 </li></ul><ul><li>Applicable fraction (% of LIHTC units) X 100% </li></ul><ul><li>Qualified Basis $2,800,000 </li></ul><ul><li>Tax Credit Applicable Percentage X 9% </li></ul><ul><li>Annual Tax Credit $ 252,000 </li></ul><ul><li>Tax Credit Period X 10 yrs. </li></ul><ul><li>$2,520,000 </li></ul><ul><li>Equity at $.80 per Credit X .80 </li></ul><ul><li>$2,016,000 </li></ul><ul><li>Total Development Cost $3,000,000 </li></ul><ul><li>Less: Equity (2,016,000) </li></ul><ul><li>Required Debt $ 984,000 </li></ul>
  14. 14. In today’s market, the average development must have a least two or three sources of additional funding. <ul><li>Nebraska Affordable Housing Trust Fund </li></ul><ul><li>Federal Home Loan Bank </li></ul><ul><li>HOME funds </li></ul><ul><li>USDA – Rural Development </li></ul><ul><li>CDBG </li></ul><ul><li>TIF funds </li></ul><ul><li>Historic Tax Credits </li></ul><ul><li>Developer Note </li></ul><ul><li>Grants </li></ul>
  15. 15. Partnership Roles / Expectations <ul><li>Non-profit Roles </li></ul><ul><ul><li>Sponsor the Project </li></ul></ul><ul><ul><li>Develop the Project </li></ul></ul><ul><ul><li>Serve as General Partner </li></ul></ul><ul><ul><li>Serve as the Project Manager </li></ul></ul><ul><ul><li>Maintain the Project in Compliance </li></ul></ul><ul><ul><li>Provide specific guarantees to the investor </li></ul></ul>
  16. 16. Compliance Monitoring <ul><li>Annual Owner Certification of Continuing Compliance Report, utility allowance, summary report, and tenant income certifications. </li></ul><ul><li>File review and inspection required no later than the end of the 2 nd year following PIS. </li></ul><ul><li>On-site reviews and inspections required at least every three years thereafter. </li></ul>
  17. 17. Types of Developer Guarantees <ul><li>Construction Completion Guarantee (i.e. Lien Free Construction) </li></ul><ul><li>Operating Guarantee (i.e. cover operating deficits) </li></ul><ul><li>Tax Credit Adjusters </li></ul><ul><ul><li>Timing Adjuster </li></ul></ul><ul><ul><li>Recapture </li></ul></ul>
  18. 18. Role of Investor Partner <ul><li>Provide equity financing through sale of credits. </li></ul><ul><li>Monitor project during construction – approves distributions to developer for construction costs. </li></ul><ul><li>Assist with initial lease-up (i.e. tenant income certifications) </li></ul><ul><li>Ensure compliance </li></ul>
  19. 19. NIFA Website http://www.nifa.org Questions? Robin Ambroz-Hollman, Manager of the LIHTC / CRANE Program 402-434-3900 [email_address]
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