RPFSS BROWN BAG LOW-INCOME HOUSING TAX CREDITS. Background/Purposes LIHTC = indirect federal subsidy...
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RPFSS BROWN BAG LOW-INCOME HOUSING TAX CREDITS. Background/Purposes LIHTC = indirect federal subsidy used to finance low-income housing Congress created
Background/Purposes LIHTC = indirect federal subsidy used to
finance low-income housing Congress created as incentive for
private developers and investors to provide more affordable rental
housing. Eligible taxpayers receive a subsidy by claiming a tax
credit on their federal income tax returns. Dollar for dollar
credit (not deduction) claimed pro-rata over 10 years Both newly
constructed and renovated residential rental buildings
www.dbedt.hawaii.gov/hhfdc/ 2
Slide 3
How does the LIHTC work ? 3
Slide 4
www.dbedt.hawaii.gov/hhfdc/ 4 Project Owner Proposes project to
the state housing agency Applies for and is awarded an allocation
of tax credits Completes the project Certifies development costs
Rents project to low-income tenants 4
Slide 5
www.dbedt.hawaii.gov/hhfdc/ 5 Equity capital for development
costs LIHTC provides equity funding for the development cost of
low- income housing By allowing an investor (i.e, partners of a
partnership, or members of a manager-based LLC, that owns the
project) to take a federal tax credit Project Owner raises equity
capital by "syndicating" the credit to an investor (or group of
investors) 5
Slide 6
www.dbedt.hawaii.gov/hhfdc/ 6 Amount of Tax Credits based on
Amount of credits awarded to the project Actual cost of the project
(qualified basis) Tax credit rate announced by the IRS (credit
percentage) Percentage of the project units rented to low-income
tenants
Slide 7
www.dbedt.hawaii.gov/hhfdc/ 7 Federal Law (IRC Section 42)
Qualified low-income building Residential rental real property Rent
restricted test Minimum Set-Asides - Low-income occupancy
percentage
Slide 8
www.dbedt.hawaii.gov/hhfdc/ 8 Compliance Period Initial - 15
years after project placed in service Extended additional 15 years
Compliance monitoring annual certifications Land Use Restrictive
Agreement Regulatory Agreement Tax recapture of all past and future
LIHTC If the project fails to comply with the requirements of
Section 42, including the Set-Asides and Rent Restrictions any time
during the initital 15-year Compliance Period
Slide 9
www.dbedt.hawaii.gov/hhfdc/ 9 State Law (HRS Sections 201H-4
& 15/HAR Chapter 15-315 Hawaii Housing Finance and Development
Corporation Designated state housing agency under HRS Chapter 201H
Craig Hirai, Esq. (Executive Director) Darren Ueki (Finance
Manager) www.dbedt.hawaii.gov/hhfdc/ 9
Slide 10
10 How much in LIHTC does Hawaii receive?
Slide 11
www.dbedt.hawaii.gov/hhfdc/ 11 9% LIHTC (competitive/volume
cap) are allocated to each state based on population.
Slide 12
www.dbedt.hawaii.gov/hhfdc/ 12 For 2014, Hawaii received the
following: $3,229,324 $2.30 (LIHTC rate) x 1,404,054
(population)
Slide 13
www.dbedt.hawaii.gov/hhfdc/ 13 4% LIHTC
(non-competitive/non-volume cap) are allocated based on the use of
private activity tax-exempt bonds. The State has a bond cap of
approximately $296 million.
Slide 14
www.dbedt.hawaii.gov/hhfdc/ 14 Hawaii also has a State LIHTC
which is 50% of the amount of Federal LIHTC received.
Slide 15
www.dbedt.hawaii.gov/hhfdc/ 15 How are LIHTC awarded?
Slide 16
www.dbedt.hawaii.gov/hhfdc/ 16 The LIHTC are awarded using what
is known as the Qualified Allocation Plan or QAP.
Slide 17
www.dbedt.hawaii.gov/hhfdc/ 17 The QAP is a point-based scoring
system which takes into account mandated requirements of the IRS
and priorities of the State. It also conveys to applicants other
program requirements.
Slide 18
www.dbedt.hawaii.gov/hhfdc/ 18
Slide 19
www.dbedt.hawaii.gov/hhfdc/ 19 Developers apply for LIHTC
through HHFDCs Consolidated Application. The Consolidated
Application allows applicants to apply for various other financing
programs with one application.
Slide 20
www.dbedt.hawaii.gov/hhfdc/ 20 HHFDC has two Consolidated
Application funding rounds per year. Round 1 (typically in the 1st
quarter of the calendar year) offers 9% and 4% LIHTC along with
other financing programs. Round 2 (typically in the 3rd quarter of
the calendar year) offers 4% LIHTC along with other financing
programs.
Slide 21
www.dbedt.hawaii.gov/hhfdc/ 21 Applications are reviewed and
scored by HHFDCs Finance and Development staff utilizing the
QAP.
Slide 22
www.dbedt.hawaii.gov/hhfdc/ 22 Recommendations for awarding
LIHTC and other financing resources are presented to the HHFDC
Board for approval.
Slide 23
www.dbedt.hawaii.gov/hhfdc/ 23 The Following are Sample
Permanent Financing Structures for 9% and 4% LIHTC Projects.
www.dbedt.hawaii.gov/hhfdc/ 25 4% LIHTC Project 20% - 25% HMMF
Bond 35% - 40% equity gap (government programs) 40% LIHTC
equity
Slide 26
www.dbedt.hawaii.gov/hhfdc/ 26 Exemptions General Excise Tax
Exemptions (HRS Sections 201H & 237-29/HAR Chapter 15-306
Eligible Housing Projects Eligible Persons and Firms Allowable
Costs Financing Development Construction Income Economic
Feasibility
Slide 27
www.dbedt.hawaii.gov/hhfdc/ 27 Real Property Tax Exemptions
(ROH Section 8-10.20) Rental Housing Project 20% of dwelling units
reserved for households with annual income not exceeding 80% of
area median income. Recorded regulatory agreement
Slide 28
CRAIG K. HIRAI Executive Director 677 Queen Street, Suite 300
Honolulu, Hawaii 96813 Phone: (808) 587-0641 Fax: (808) 587-0600
Email: [email protected]@hawaii.gov
www.http://dbedt.hawaii.gov/hhfdc/
