Starting 2013 with Fiscal Cliff Aversion and Good News for LIHTC
Welcome news has arrived with the New Year from our fair capital city of Washington, DC in the form of fiscal cliff aversion that had been looming into the holidays of 2012. Congress passed House Resolution 8, The American Taxpayer Relief Act of 2012 in the wee hours of New Year’s Eve and the early hours of New Year’s Day, with expectations that the President will be signing it into law very soon. In addition to extending the tax cuts from 2001 and 2003 that affect most taxpayers in this country, there are a couple of winning provisions for the Low-Income Housing Tax Credit Program that I am happy to be reporting to you this month.
Some of you may remember an earlier article written in this column last summer where these same two provisions passed Committee in the Senate. The first of these was the extension of the fixed 9% credit percentage rate for non-federally subsidized LIHTC properties, or ‘9% deals’ in industry lingo. Fortunately, this was included in H.R. 8 and will be effective for all housing credit allocations made until January 1, 2014 rather than just those housing credit buildings placed in service until the end of 2013. The original rate fix was part of the Housing and Economic Recovery Act, aka HERA, of 2008 and has helped stabilize underwriting for these deals by providing a predictable, higher rate of credit allocation. Prior to HERA all LIHTC projects were subject to a monthly fluctuating credit rate that was market dependent and therefore harder to predict. The federally subsidized tax credit projects, or ‘4% deals’, have continued to weather the fluctuating monthly rates published by the IRS as no change was included for them in the HERA legislation. I imagine that momentum will remain high in the industry to push for permanently fixing this rate along with the 9% rate to add greater benefit to all tax credit projects.
The second provision included in H.R. 8 that affects some LIHTC properties is the extension of the Military Basic Allowance for Housing (BAH) exclusion from annual income, that was also a HERA provision in 2008, until January 1, 2014. It too, passed the Senate Finance Committee vote last summer along with the credit rate extension. LIHTC properties affected by this are located in counties with military installations that grew by 20 percent or more from December 31, 2005 to June 1, 2008 and to buildings in counties that are adjacent to such counties. This provision initially expired on January 1, 2012 but is being reinstated for the coming year. Readers may go to www.nchm.org to find a link to more information about this from the original legislation on the home page.
In other Washington news, we also received HUD’s publication of the 2013 income limits on December 4, 2012 but not without a glitch. They ended up re-publishing them on December 11, 2012 due to a computation error, which caused a slight stir in the industry as to when the true effective date for LIHTC properties should be. The IRS has clarified that the revised limits will be treated as if they were published on December 4, which projects the 45-day grace period for starting to use the new limits for LIHTC until January 18, 2013. In the interim, owners may rely on the limits that are to their greatest benefit whether that is those from 2012 or 2013. IRS Rev. Proc. 94-57 originally provided for this extension period of existing income limits from the HUD published effective date.
As you’re reading this, I am preparing to travel to Washington myself for the annual National Council of State Housing Agencies’ Housing Finance Institute which encompasses a week of workshops on a variety of affordable housing programs. So, I look forward to reporting back to you in February on what I learn there. And if I failed to do so already, I would like to extend a warm Happy New Year to all! I’m excited about another year in the world of LIHTC housing management and certainly hope that you are too.