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Protecting Americans from Tax Hikes of 2015 Part 2

Posted on: February 29th, 2016 by Christa Landram No Comments

Protecting Americans from Tax Hikes 2015 Part 2

I recently wrote an article regarding the bill titled “Protecting Americans from Tax Hikes of 2015.” In that article, I discussed the minimum tax credit rate for projects that receive LIHTC’s. I would like to shed some light regarding another facet of this bill as it pertains to the Basic Allowance for Housing (BAH). Included in the bill was an extension of military housing allowance exclusion for purposes of determining low-income housing eligibility.

A provision in the 2008 Housing Assistance Tax Act that temporarily excluded the military basic housing allowance for determining whether a tenant in certain counties is low-income, was made permanent in this revision. When determining the annual household income for a military professional, you may be able to exclude the BAH.

It is important that you check with your state agency to see which military bases are part of this exclusion. For example, a recent web board posting from Florida Housing Finance Corporation stated that the Basic Allowance for Housing will no longer be included in the determination of annual income for residents who are stationed at MacDill AFB in Tampa and who reside in qualified buildings located in Hillsborough County or the adjacent counties of Hardee, Manatee, Pasco, Pinellas and Polk.

Please note that this exclusion of income does not apply to HUD’s HOME Investment Partnerships program nor to Florida’s State Housing Initiatives Partnership (SHIP) program.

Real Estate as an Asset

Posted on: February 16th, 2016 by Christa Landram No Comments

Real Estate as an Asset
Under Section 42 of the Tax Code, all assets must be accounted for, with the exception of assets that have been disposed of more than two years ago. Real estate is part of assets that must be counted. Since there are a few different types of real estate, calculating total assets can be confusing.

To determine the asset value of real estate that has been sold at market value, the cash value of the property and the imputed value (if it exceeds $5,000) must be calculated. You calculate the imputed value by taking the cash value and multiplying it by the current HUD passbook rate. Once those two calculations are completed, the higher of the two is determined and used. The cash value is determined by taking the actual value of the property and deducting the outstanding mortgage, closing costs, and any other applicable fees.

A household that is using their real estate as rental property may apply to live in your property. When dealing with this scenario, two calculations must be done. The cash value must be determined as noted above. The second calculation that must be done is to determine the monthly income that is received for rent. The actual income received is not what is included. Management must take that amount and subtract the mortgage and any applicable maintenance fees.

If a real estate asset has been foreclosed on then it will not be considered in the asset calculations, as the tenant will not be receiving income from the foreclosure. Keep in mind that until the foreclosure is complete, the real estate is sold at an auction, or the title has been transferred to another party, the real estate is still technically considered the tenant’s.

The real estate may have gone through a short sale. In this case, it is typically not considered an asset as, most often, the owner will not be receiving income from this asset. However, if there is a difference in the sale that is in favor of the resident, that difference is counted as an asset. Additionally, it must be verified by a third party if it is a HOME project and if it exceeds $5,000 for LIHTC.
One final note is in regard to reverse mortgages. These are similar to a loan since the income from this must be paid back. Keep in mind that the real estate would still need to be treated as an asset and calculated accordingly. The calculation for the cash value of this done by taking the market value less the principal balance due on the reverse mortgage.

There are many types of scenarios when dealing with real estate, so please ensure you are consulting with your HFA or State Agency if you come across one of these examples.

Protecting Americans from Tax Hikes of 2015

Posted on: February 3rd, 2016 by Christa Landram No Comments

On December 18, 2015, a bill titled “Protecting Americans from Tax Hikes of 2015” was passed. One aspect of this bill makes permanent tax provisions, including setting the minimum tax credit rate for projects that receive LIHTC’s. A section of this bill extends the minimum tax credit rate at a fixed rate of 9% for new construction and substantial rehab. This will positively affect the total annual credit received over 1-10 years.

This extension keeps Low Income Housing Tax Credit (LIHTC) projects from receiving floating tax credits. For example, let’s calculate an annual credit assuming the tax rate percentage is 7.49% and a building’s eligible basis is $2,000,000 with a 75% applicable fraction.

$2,000,000 (eligible basis) x 75% (applicable fraction) = $1,500,000 (qualified basis)
$1,500,000 x 7.49% = $112,350 (annual credit)
Now, let’s look at an example where the tax rate is 9% using the same property information.
$2,000,000 (eligible basis) x 75% (applicable fraction) = $1,500,000 (qualified basis)
$1,500,000 x 9% = $135,000 (annual credit)

So, just over one year, that is a $22,650 difference. Over 10 years that comes to $226,500.

Just looking at that one calculation it is clear that this is a significant change for all owners of affordable housing projects. With a growing rate of homelessness in many counties, this is a huge victory for the affordable housing industry as this makes deals more financially feasible for owners across the nation.

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