JOURNAL OF TAX CREDITSWritten by Glenn Graff, Published by Novogradac & Company LLP, Journal of Tax Credits, September 2012, Volume III, Issue IX
December 30, 2013! Without Congressional action, this is the last day a building using low-income housing tax credits (LIHTCs) can be placed in service and benefit from a 9 percent applicable percentage. In light of this looming date, this article discusses techniques that some projects may be able to use to either preserve the 9 percent rate or otherwise utilize the full amount of LIHTCs they have been awarded, including cases where the 9 percent rate can be used with 2014 LIHTCs.
Background
The applicable percentage is the rate that one multiplies against a building’s qualified basis in order to determine the maximum amount of LIHTC that a building can receive.
Until 2008, the applicable percentage for a building not using tax-exempt bonds was determined based on the earlier of the month the building was placed in service or the month in which the owner and the credit agency entered into a binding agreement as to the LIHTC amount to be allocated to a building.
Amid the financial meltdown in 2008, Congress passed the Housing and Economic Recovery Act of 2008 (HERA), which included many improvements to Internal Revenue Code (IRC) Section 42. HERA specifically established that for new construction or rehabilitated buildings financed without tax-exempt bonds that are placed in service after July 30, 2008 and before Dec. 31, 2013, the applicable percentage will be no less than 9 percent (the 9 percent floor).
The creation of the 9 percent floor had an immediate helpful impact on the financing of LIHTC buildings. The 9 percent floor was 13.5 percent higher than the July 2008 applicable percentage of 7.93 percent. This difference has continued to grow. In August, the 9 percent rate was 22 percent higher than the August 2012 floating rate. This allows projects to qualify for 22 percent more LIHTC and equity.
