The IRS has issued Revenue Ruling 2021-20, providing clarity on when taxpayers may claim the fixed four percent credit for properties with tax-exempt bonds. The IRS addressed three separate issues relative to the 4% credit:
The ruling indicates that the 4% credit floor does not apply in any of the cited examples, even though all the buildings described in the examples satisfy the requirement of §42(b)(3) that a building is placed in service after 2020. It should be noted that since the IRS considers the placed-in-service date of a building for acquisition purposes to be the date the building is purchased by the new owner, in example #3 above, the building could not be purchased until after December 31, 2020.
Generally, a project without tax-exempt bonds - such as shown in Example #3 - must only meet the post-2020 placed in service test to qualify for the 4% floor for acquisition credits. Properties with tax-exempt bonds must meet two tests: (1) The property must be placed in service after 2020, and (2) the bonds must be issued after 2020. However, the facts presented in Example #3 have led the IRS to the conclusion - based on the Service’s interpretation of Congressional intent - that even being placed in service after 2020 may not automatically entitle the acquisition costs of a non-tax-exempt bond project to the 4% floor. This issue is covered in more detail below.
Therefore, in the example cited here, the 4% floor does not apply to the building described in Example #3, and the credit percentage will be the percentage for the month of the allocation or, at the election of the taxpayer, the month the building was placed in service.
To summarize the IRS ruling -
Owners that anticipate the use of the 4% credit floor for properties being placed in service after December 31, 2020, should carefully review this Revenue Ruling for applicability to their project.
A. J. Johnson Partners with Mid-Atlantic AHMA for February Training on Affordable Housing
During the month of February 2022, A. J. Johnson will be partnering with the MidAtlantic Affordable Housing Management Association for three live webinars intended for real estate professionals, particularly those in the affordable multifamily housing field. The following live webinars will be presented: February 15: Basic LIHTC Compliance - This training is designed primarily for site managers and investment asset managers responsible for site-related asset management and is especially beneficial to those managers who are relatively inexperienced in the tax credit program. It covers all aspects of credit related to on-site management, including the applicant interview process, the determination of resident eligibility (income and student issues), handling recertification, setting rents - including a full review of utility allowance requirements - lease issues, and the importance of maintaining the property. The training includes problems and questions designed to ensure that students are fully comprehending the material. February 16: Dealing with Tenant-on-Tenant & Workplace Harassment - Dealing with tenant-on-tenant harassment is an evolving area of fair housing law. Landlords are generally familiar with how their actions can be construed as discriminatory. But how should landlords react when one resident is violating the fair housing rights of another resident? Title VII of the Civil Rights Act of 1964 prohibits discrimination based on sex in the workplace - including sexual harassment. The law applies to employers with 15 or more employees. In addition to having a written sexual harassment policy, companies should also have an effective complaint procedure. Many businesses in the United States have no policies regarding sexual harassment, and such harassment occurs in the highest levels of corporate management. However, the risk of not having such a policy far outweighs the effort required to implement one. These risks are greater now than ever before. Victims of sexual harassment may now recover damages (including punitive damages) and the Supreme Court has made it easier to prove injury. This Three-hour training is designed to help property owners and managers understand the current legal state of these two issues and to establish policies to limit potential liability. The session will include a discussion of the two most relevant court cases relating to tenant-on-tenant harassment as well as cases that outline employer risk regarding harassment in the workplace. Participants will also be provided with recommended policies to limit potential liability. February 23: The Verification and Calculation of Income and Assets on Affordable Housing Properties - This five-hour course (there will be a one-hour lunch break) provides concentrated instruction on the required methodology for calculating and verifying income, and for determining the value of assets and income generated by those assets. The first section of the course involves a comprehensive discussion of employment income, along with military pay, pensions/social security, self-employment income, and child support. It concludes with workshop problems designed to test what the student has learned during the discussion phase of the training and serve to reinforce HUD required techniques for the determination of income. The second component of the training focuses on a detailed discussion of requirements related to the determination of asset value and income and is applicable to all federal housing programs, including the low-income housing tax credit, tax-exempt bonds, Section 8, Section 515, HOME, and HOPE VI. Multiple types of assets are covered, both in terms of what constitutes an asset and how must they are verified. This section also concludes with a series of problems, designed to test the student s understanding of the basic requirements relative to assets. These sessions are part of the year-long collaboration between A. J. Johnson and MidAtlantic AHMA and are designed to provide affordable housing professionals with the knowledge needed to effectively manage the complex requirements of the various agencies overseeing these programs. Persons interested in any (or all) of these training sessions may register by visiting either www.ajjcs.net or https://www.mid-atlanticahma.org.
A. J. Johnson to Offer Average Income Live Webinar
A. J. Johnson will be conducting a webinar on January 26, 2022, on Requirements & Best Practices Relating to the Average Income Minimum Set-Aside for LIHTC properties. The Webinar will be held at 1:00 PM Eastern Time. The Average Income Minimum Set-Aside Test ("AI ) was added to the LIHTC program in March 2018. While it is being implemented successfully on many properties, there remains a good deal of industry-wide confusion about the use of the AI set-aside and the risks involved. This one-hour live webinar will review the requirements of the AI, discuss the risks of this set-aside, and provide best practice recommendations for the implementation of the Average Income test. We will also cover the current IRS guidance relating to the AI set-aside and recent industry requests made to the IRS. The Webinar will be presented by A. J. Johnson, a nationally recognized expert on affordable housing who has already provided compliance oversight on multiple properties using the AI set-aside. Those interested in participating in the Webinar may register on the A. J. Johnson Consulting Services website (www.ajjcs.net) under "Training.
IRS Extends COVID-19 Relief for LIHTC and Tax-Exempt Bond Properties
On Friday, January 14, 2022, the IRS will release a notice (2022-05) extending widespread temporary relief from certain requirements for low-income housing tax credit (LIHTC) financed and private activity tax-exempt bond-financed properties due to the COVID-19 pandemic. Extended relief will include: Relief for the 10% test for carryover allocations. If the original deadline for an owner to meet the 10% test for carryover allocations is on or after April 1, 2020 and on or before December 31, 2020, the deadline is extended to the original deadline plus two years. If the original deadline is on or after January 1, 2021 and before December 31, 2022, the deadline is extended to December 31, 2022;The 24-month minimum rehabilitation period. If the original deadline for the 24-month minimum rehabilitation expenditure period for a building originally is on or after April 1, 2020, and is on or before December 31, 2021, then that deadline is extended to the original date plus 18 months. If the original deadline for this requirement is on or after January 1, 2022, and on or before June 30, 2022, then that deadline is extended to June 30, 2023. If the original deadline for this requirement is on or after July 1, 2022, and on or before December 31, 2022, then that deadline is extended to the original date plus 12 months. If the original deadline for this requirement is on or after January 1, 2023, and on or before December 30, 2023, then that deadline is extended to December 31, 2023;The placed-in-service deadline. If the original deadline for a low-income building to be placed in service was the close of calendar year 2020, the new deadline is the close of calendar year 2022 (that is, December 31, 2022). If the original placed-in-service deadline was the close of calendar year 2021 and the original deadline for the 10-percent test in 42(h)(1)(E)(ii) was before April 1, 2020, the new placed-in-service deadline is the close of calendar year 2022 (that is, December 31, 2022). If the original placed-in-service deadline is the close of calendar year 2021 and the original deadline for the 10-percent test in 42(h)(1)(E)(ii) was on or after April 1, 2020, and on or before December 31, 2020, then the new placed-in service deadline is the close of calendar year 2023 (that is, December 31, 2023). If the original placed-in-service deadline is the close of calendar year 2022 (and thus the original deadline for the 10-percent test was in 2021), then the new placed-in-service deadline is the close of calendar year 2023 (that is, December 31, 2023);The reasonable restoration period in the event of casualty loss. For purposes of 42(j)(4)(E) both in the case of a casualty loss not due to a pre-COVID-19-pandemic Major Disaster and in situations governed by section 8.02 of Rev. Proc. 2014-49 in the case of a casualty loss due to a pre-COVID-19-pandemic Major Disaster, if a low-income building s qualified basis is reduced by reason of the casualty loss and the reasonable period to restore the loss by reconstruction or replacement that was originally set by the HCA (original Reasonable Restoration Period) ends on or after April 1, 2020, then the last day of the Reasonable Restoration Period is postponed by eighteen months but not beyond December 31, 2022. Notwithstanding the preceding sentence, the Agency may require a shorter extension, or no extension at all; andAgency correction periods. if a correction period that was set by the Agency ended on or after April 1, 2020, and before December 31, 2021, then the end of the correction period (including as already extended, if applicable) is extended by a year, but not beyond December 31, 2022. If the correction period originally set by the Agency ends during 2022, the end of the period is extended to December 31, 2022. Notwithstanding the preceding sentences, the Agency may require a shorter extension, or no extension at all. The notice also provides an extension to satisfy occupancy obligations. If the close of the first year of the credit period with respect to a building was on or after April 1, 2020, and on or before December 31, 2022, then, for purposes of 42(f)(3)(A)(ii), the qualified basis for the building for the first year of the credit period is calculated by taking into account any increase in the number of low-income units by the close of the 6-month period following the close of that first year. This provides an additional six months after the first year of the credit period to qualify units in order to avoid the 2/3-unit rule. Concerning compliance, the notice will provide an extension to the requirement for a 30-day notice for HFA reviews of tenant files through the end of 2022 and will permit HFAs to defer physical inspections through June 30, 2022, with the option to extend the deferral to the end of 2022 in consultation with local public health experts. An Agency was not required to review tenant files in the period beginning on April 1, 2020, and ending on December 31, 2021. The Agency must have resumed tenant-file review as due under 1.42-5 as of January 1, 2022. For purposes of 1.42-5(c)(2)(iii)(C)(3), between April 1, 2020, and the end of 2022, when the Agency gives an Owner reasonable notice that it will review low-income certifications of not-yet-identified low-income units, it may treat the reasonable notice as being up to 30 days. Beginning on January 1, 2023, for this purpose reasonable notice again is generally no more than 15 days. An Agency is not required to conduct compliance monitoring physical inspections in the period beginning on April 1, 2020, and ending on June 30, 2022. Because of the high State-to-State and intra-State variability of COVID-19 transmission, an Agency, in consultation with public health experts, may extend the waiver in the preceding sentence if the level of transmission makes such an extension appropriate. Depending on varying rates of transmission, the extension may be Statewide, may be limited to specific locales, or maybe on a project-by-project basis. No such extension may go beyond December 31, 2022. The Agency must resume compliance-monitoring reviews as due under 1.42-5 once the waiver expires. For purposes of 1.42-5(c)(2)(iii)(C)(3), between April 1, 2020, and the end of 2022 only, when the Agency gives an Owner reasonable notice that it will physically inspect not-yet-identified low-income units, it may treat the reasonable notice as being up to 30 days. Beginning on January 1, 2023, for this purpose reasonable notice again is generally no more than 15 days. The closure of amenities or common areas in LIHTC properties due to COVID-19 will not result in a reduction of eligible basis and essential workers may be provided emergency housing in LIHTC properties. This will apply until December 31, 2022. During the above period, an HFA may deny any application of the above waiver or, based on public health criteria, may limit the waiver to partial closure, or to limited or conditional access of an amenity or common area. (For example, the Agency may apply the waiver to access an amenity or common area that is limited to persons wearing masks or to persons fully vaccinated against COVID-19.) The following relief is provided for tax-exempt bond properties: THE 12-MONTH TRANSITION PERIOD TO MEET SET-ASIDES FOR QUALIFIED RESIDENTIAL RENTAL PROJECTS. For purposes of section 5.02 of Rev. Proc. 2004-39, if the last day of a 12-month transition period for a qualified residential rental project originally was on or after April 1, 2020, and before December 31, 2022, then that last day is postponed to December 31, 2022. B THE 147(d) 2-YEAR REHABILITATION EXPENDITURE PERIOD FOR BONDS USED TO PROVIDE QUALIFIED RESIDENTIAL RENTAL PROJECTS. If a bond is used to provide a qualified residential rental project and if the last day of the 147(d) 2-year rehabilitation expenditure period for the bond originally was on or after April 1, 2020, and before December 31, 2023, then that last day is postponed to the earlier of eighteen months from the original due date or December 31, 2023. Owners of LIHTC or tax-exempt bond properties that may be affected by this relief should obtain a copy of the IRS Notice when published on January 14.
Child Care and Affordable Housing - A Potential "Win/Win" for Residents and Owners
A "gray rhino is a highly probable, high-impact yet neglected threat. These are not random surprises but occur after a series of warnings and visible evidence. The bursting of the housing bubble in 2008, the aftermath of hurricanes, and the fall of the Soviet Union are examples of gray rhinos. Jill Schlesinger, a CBS News business analyst, recently wrote an article making the case that childcare should be added to the list of gray rhinos. Some of the data Schlesinger outlined relating to childcare costs is stunning. A report from the U.S. Treasury stated, "The average family with at least one child under age 5 would need to devote about 13% of family income to pay for childcare, a number that is unaffordable for most families. The Department of Health & Human Services (HHS) considers childcare affordable when it costs no more than 7% of household income. With a U.S. median household income of $67,521, affordability is less than $100 per week. Childcare at this price is almost impossible to find.The average childcare cost in a daycare center is $340 per week, which means an annual income of more than $250,000 is needed to consider the care to be "affordable. A 2021 Care.com annual cost of care survey found that 57% of families spent more than $10,000 on childcare in 2020. Finding care is also a problem. Thousands of centers closed due to COVID-19. The low-paid workers of these facilities are now finding other - better paying - jobs. The median annual pay for daycare workers is $25,460 (12.24 per hour - if they work 40 hours per week). This is not a livable wage. The impact of all this is that parents (mainly women) are being forced to leave the workforce to care for their children. In September 2021, nearly 300,000 women left the labor force. Since the pandemic began that number is 3 million. The Build Back Better Plan of the Biden Administration would cap childcare costs at 7% of income for kids up to age five on a sliding scale, depending on the state of residence. In today s political climate, the chance of passage is close to zero. This lack of affordability presents a potential opportunity for forward-thinking owners of affordable housing. Among the possible ways to improve childcare affordability for residents is Partner with local daycare organizations to negotiate rate breaks for residents, in return for advertising the daycare facility at your property;Offer community space to local daycare operators to set up onsite care for children of the community; orSet up a childcare facility as a community amenity. This third option requires an analysis of the financial feasibility of the operation, as well as a determination of required local approvals. Despite this, such an operation is feasible and already exists in a number of properties across the nation. The following analysis indicates the method an owner may use as a starting point for determining feasibility. Assume that demand is such that 15 households at a property would consider onsite daycare if it was affordable.To pay for a full-time and part-time daycare worker ($18 per hour & $15 per hour:Full-time salary: $37,440Part-time salary (assume 20 hours per week): $15,600Employee benefits of $17,680 (Insurance, paid leave, health care).Total annual employee cost: $70,720If 15 children are cared for at $100 per week for 50 weeks, income is $75,000. Childcare at apartment communities would be considered a resident amenity - not a profit center. A simple break-even outcome may make consideration of this option worthwhile. Regardless of whether apartment owners determine that acting affirmatively regarding childcare is something to be initiated, the childcare crisis is real - and only getting worse. Thinking about how this burden can be eased for our customers seems like good business.