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Exclusion of Military Basic Allowance for Housing for LIHTC Properties

While the exclusion of the military Basic Allowance for Housing (BAH) for Low-Income Housing Tax Credit (LIHTC) properties in certain areas of the United States has been around for 13 years, there is still some confusion as to which properties may benefit from this exclusion. This article will recap the basic requirements and clarify some potential confusion. Section 3005(a) of the 2008 Housing Act amended the LIHTC program requirements to exclude the military Basic Allowance for Housing payments from income for certain qualified LIHTC buildings. A qualified building is defined as any building located: In any county which contains a qualified military installation to which the number of members of the Armed Forces assigned to units based out of such qualified military installation increased by 20% or more between December 31, 2005, and June 1, 2008; orAny counties adjacent to the county described in #1 above. For these purposes, a "qualified military installation" means any military installation or facility that had at least 1,000 members of the Armed Forces of the United States assigned to it as of June 1, 2008. Qualifying military bases were identified in IRS Notice 2008-79. However, the list was not an exclusive list and any qualified military installation which satisfied the percentage requirements outlined above is eligible to receive similar treatment regardless of the fact that it was not identified in the IRS Notice. The following list identifies military installations that are deemed to be qualified military installations that satisfied the 20% population increase requirement for purposes of the exclusion of BAH in determining income for LIHTC (and some tax-exempt bond) properties. The IRS will update the list if it receives additional information indicating that other military installations should receive the same treatment. Note - owners and managers should confirm the eligibility of these locations with their Housing Finance Agency: U.S. Air Force Academy, Colorado - Colorado Springs, Co (El Paso County with adjacent counties of Elbert, Crowley, Douglas, Fremont, Lincoln, Pueblo, and Teller).Fort Shafter, HA - Hawaii (Honolulu County and adjacent counties of Maui and Kauai).Fort Riley, KS - Geary & Riley Counties, KS with adjacent counties of Wabaunsee, Morris, Dickenson, Clay, Marshall, Pottawatomie and Washington.Annapolis Naval Station (including U.S. Naval Academy), MD - located in Anne Arundel County with adjacent counties of Baltimore, Calvert, Kent, Howard, Prince George s, Queen Anne s and Talbot.Fort Jackson, SC - located in Richland County, SC with adjacent counties of Kershaw, Fairfield, Sumter, Lexington, Calhoun, and Newberry.Fort Bliss, TX - located in El Paso County, with adjacent counties of Hudspeth, Dona Ana (New Mexico), and Otero (New Mexico).Fort Hood, TX - located in Bell County, with adjacent counties of McLennan, Falls, Milam, Williamson, Burnet, Lampasas, and Coryell.Dam Neck Training Center Atlantic, Virginia - Located in Virginia Beach, with adjacent cities of Norfolk and Chesapeake; also Currituck County, NC.Naval Station Bremerton, Washington - located in Kitsap County, with adjacent counties of Island, Snohomish, King, Pierce, Mason, and Jefferson. Tax-exempt bond-financed properties with the LIHTC are eligible for this exclusion, but bond properties without the LIHTC are not eligible for the exclusion.

Child Tax Credit Excluded Income for Housing Purposes

The American Rescue Plan of 2021 (ARP) provides a monthly payment from the enhanced child tax credit and these payments are landing in family bank accounts during the week of July 12, with the first payments arriving on July 15. HUD has determined, in accordance with Federal law, that the monthly child tax credit is to be excluded from the annual income calculation for affordable housing programs. Section 7527A of the ARP provides a monthly payment of up to $300 per month from July 2021 through December 2021. 26 U.S. Code 6409 states, "notwithstanding any other provision of law, any refund (or advance payment with respect to a refundable credit) made to any individual under this title shall not be taken into account as income, and shall not be taken into account as resources for a period of 12 months from receipt, for purposes of determining the eligibility of such individual (or any other individual) for benefits or assistance (or the amount or extent of benefits or assistance) under any Federal program or under any State or local program financed in whole or in part with Federal funds."  Due to the requirements of this law, the child tax credit is excluded income for purposes of any housing utilizing federal benefits or assistance, including the Low-Income Housing Tax Credit program (LIHTC). Parents of children ages 5 and younger can receive up to $300 per month per child and $250 per month per child ages 6 to 17. The payments max out at $3,600 annually for each child under six and $3,000 for those ages six to 17. The credit is fully refundable, meaning families can still benefit even if they have no earned income or do not owe income taxes. The expanded credit ends in December, but President Biden has called for a four-year extension, which would need Congressional approval. In addition to the Child Tax Credit, owners and operators of affordable housing should keep in mind that the Federal Pandemic Unemployment Compensation of $300 per week is also excluded income.

Reducing Insurance Premiums - A Key to Improving Property Cash Flow

Nationally, insurance premiums for multifamily housing make up about 4% of the total operating expenses owners face in the operation of these properties, well behind the big-ticket items like taxes (32%) and salaries/personnel (25%). Despite being a low percentage of overall operating expenses, insurance premiums are one of the costs most susceptible to owner decisions. While initial property design can play a key role in controlling the rising cost of insurance, there are affirmative steps that owners of existing properties can take to lower current premiums. In terms of frequency, the leading risk exposure that owners of affordable rental housing face is from slips, trips, and falls. In cold climates, radiant heating options for exterior walking surfaces are an excellent way to limit ice formation on stairways and walking areas. Radiant heating can be used virtually anywhere - concrete, patio stones, pavers, dirt, and grass. Restaurants with open-air dining were among the first to install radiant heating systems in outdoor areas. The heating system melts snow as it lands and keeps ice from forming. This technology can be used to keep walkways, steps, and even driveways snow and ice-free all winter long. It is clearly preferable to install such systems when a property is being built, but in cold climates, where concrete and other surfaces are repaired or replaced often, scheduling installation during capital improvements is feasible and can reduce the frequency of future repair needs. Also, in cold areas of the country, infrared cameras are great tools for identifying freeze-prone areas and water infiltration. Window control opening devices are being built into newer windows and can prevent falls from windows by children. HUD has indicated that REAC inspectors will not take a hard position relating to ease of egress when these devices are in place to protect children. These devices limit the window opening to 4 inches or less when the sash is opened, but may be disengaged, allowing the window to open fully for egress or cleaning. Uses of Infrared Technology Regular inspections of walls and ceilings with infrared cameras can detect moisture and deal with any leaks before they cause major damage. In cold weather, these cameras can locate drafty areas of buildings or potential locations of missing insulation which could lead to frozen pipes. Site security can be enhanced with access control, lighting, CCTV cameras, and burglar alarms. Insurance professionals also say that suspicious activity hotlines and mass notification systems can also reduce premiums. Waterflow monitoring and shutoff devices provide alerts to toilet and bathtub overflows, as will leak detection devices. While slips and falls are the biggest risks by frequency, the heaviest liability burden comes from fires. Cooking, electrical, and smoking are the primary causes of fires in apartments, with cooking fires presenting the most problems. Smart burners that are used as replacements for regular heating elements on electric stovetops can limit the temperature of the heating element, so cooking oil will not heat enough to cause flames. Knob controls can also limit temperatures and prevent child activation. Automatic shutoff devices can regulate time and temperature and even have motion-sensing capabilities. Auto-out fire stop cans are an excellent tool that can be easily installed above cooking surfaces. They are activated when a fire ignites a wick on the cans. With regard to electrical fires, the biggest red flags are Federal Pacific Electric (FPE) breakers and aluminum wiring. Some insurance companies will not ensure apartment communities built before the mid-1970s unless they prove that they do not have aluminum wiring. As for smoking, the easiest (and best) policy is just to ban smoking at the property. Residue testing kits are available and will dissuade tenants from smoking. Fire Stops - Excellent Tool But Easy to Steal Fire stops above stoves are an excellent fire extinguishing device but they are easy to remove and have expiration dates. Management companies that conduct regular inspections of units (quarterly is recommended) can check the expiration dates and replace the devices as needed. Since the expiration dates are known, this type of equipment is easy to budget for. Property Security There are a number of ways to impact insurance premiums by improving property security, but care should be taken because advertising the presence of security can have a negative impact on marketing and occupancy. Two common security measures are electronic surveillance and security guards. 24/7 electronic surveillance can be a good deterrent to crime and is preferable to security guards, which are a visible reminder that the property may be dangerous. The best onsite security measure is lighting, and insurance underwriters may well inspect a property s lighting plan when assessing risk. Ultimately, risk mitigation and the resulting reduction in insurance premiums is an ongoing process. A comprehensive incident reporting system with a root cause analysis is a must. Every casualty event, no matter how minor, must be reported and followed up on. Part of that follow-up should be the implementation of a plan that will prevent the recurrence of the event in the future. When combined with an ongoing inspection program to catch problems before they occur, this process will reduce casualty events to the lowest possible level and provide the greatest opportunity for reducing the cost of insurance premiums.

HUD Proposes Restoring Discriminatory Effects Rule

On June 25, 2021, HUD announced that it will issue a proposed rule titled Restoring HUD s Discriminatory Effects Standard. The publication proposes to rescind HUD s 2020 disparate impact rule and restore the 2013 discriminatory effects rule. HUD believes that the 2013 rule is more consistent with case law and better implements the Fair Housing Act s broad remedial purpose of eliminating unnecessary discriminatory practices from the housing market. The discriminatory effects (also known as disparate impact) doctrine is a tool for addressing policies that cause systemic inequality in housing. It has long been used to challenge policies that unnecessarily exclude people from housing opportunities, including zoning requirements, lending, and property insurance policies, and criminal records policies. HUD believes that having a discriminatory effects standard is necessary to meet the goal of a housing market that is free from both intentional discrimination and policies and practices that have unjustified discriminatory effects. HUD s 2013 disparate impact rule codified long-standing caselaw for adjudication of Fair Housing Act cases under the discriminatory effects doctrine, for cases filed administratively with HUD, and for federal court actions brought by private plaintiffs. Under the 2013 rule, the disparate impact framework was fairly straightforward: a policy that had a discriminatory effect on a protected class was unlawful if it did not serve a substantial, legitimate, nondiscriminatory interest or if a less discriminatory alternative could also serve that interest. The 2020 rule complicated that analysis by placing more burdensome requirements on complaining parties, new proof requirements, and new defenses, all of which made it harder to establish that a policy violates the Fair Housing Act. HUD now proposes to return to the 2013 rule s more direct analysis. The public will have 60 days to comment on the proposed rule. HUD will review the comments, develop responses, and publish a final rule. HUD has provided no timeframe regarding when a final rule can be expected.

HUD Extends Effective Period for 2019 and 2020 QCTs, DDAs that Were Not on Subsequent Lists

On July 2, 2021, HUD published a notice in the Federal Register extending the period by 180 days for which certain 2019 and 2020 qualified census tracts (QCTs) and difficult development areas (DDAs) are effective for purposes of the low-income housing tax credit (LIHTC). The notice, in response to the COVID-19 pandemic and presidentially declared emergency, extends the eligibility period from 730 days to 910 days for properties in QCTs and DDAs that are not on subsequent lists of QCTs and DDAs and that submitted applications while the area was a 2019 or 2020 QCT or DDA. HUD published lists of DDAs and QCTs for 2019 on October 22, 2018; for 2020 on September 25, 2019; and for 2021 on September 24, 2020. HUD is revising the effective date of the 2019 and 2020 QCTs and DDAs to aid the ability of areas affected by COVID-19 to place LIHTC properties into service. Effective Dates The 2019 lists of QCTs and DDAs are effective: For allocations of credit after December 31, 2018; orFor purposes of IRC 42(h)(4) if the bonds are issued and the building is placed in service after December 31, 2018. If an area is not on a subsequent list of DDAs, the 2019 lists are effective for the area if: The allocation of credit to an applicant is made no later than the end of the 910-day period after the applicant submits a complete application to the LIHTC-allocating agency, and the submission is made before the effective date of subsequent lists; orFor purposes of IRC 42(h)(4), if:The bonds are issued, or the building is placed in service no later than the end of the 910-day period after the applicant submits a complete application to the bond-issuing agency, andThe submission is made before the effective date of the subsequent lists, provided that both the issuance of the bonds and the placement in service date of the building occur after the application is submitted. An application is deemed to be submitted on the date it is filed in the application is determined to be complete by the credit-allocating or bond-allocating agency. A "complete application" means that no more than de minimis clarification of the application is required for the agency to make a decision about the allocation of credits or the issuance of bonds requested in the application. In the case of a "multiphase project." The DDA or QCT status of the project that applies for all phases of the project is that which applied when the project first received its first allocation of LIHTC.  For purposes of 42(h)(4), the DDA or QCT status of the site of the project that applies for all phases of the project is that which applied when the first of the following occurred: (a) the building(s) in the first phase were placed in service, or (b) the bonds were issued. Multiphase projects must be fully identified in the first application of credit for any building in the project. Example of Effective Date Project A is located in a 2019 DDA that is NOT a designated DDA in 2020, 2021, or 2022. A complete application for tax credits for Project A was filed with the allocating agency on November 15, 2019. Credits are allocated to the project on January 30, 2022. Project A is eligible for the increase in basis accorded a project in the 2019 DDA because the application was filed BEFORE January 1, 2020 (the effective date for the 2020 DDA lists), and because tax credits were allocated no later than the end of the 910-day period after the filing of the complete application for an allocation of tax credits (May 13, 2022). The 2020 lists of QCTs and DDAs are effective: For allocations of credit after December 31, 2019; orFor purposes of IRC 42(h)(4) if the bonds are issued and the building is placed in service after December 31, 2019. If an area is not on a subsequent list of DDAs, the 2020 lists are effective for the area if: The allocation of credit to an applicant is made no later than the end of the 910-day period after the applicant submits a complete application to the LIHTC-allocating agency, and the submission is made before the effective date of subsequent lists; orFor purposes of IRC 42(h)(4), if:The bonds are issued, or the building is placed in service no later than the end of the 910-day period after the applicant submits a complete application to the bond-issuing agency, andThe submission is made before the effective date of the subsequent lists, provided that both the issuance of the bonds and the placement in service date of the building occur after the application is submitted. An application is deemed to be submitted on the date it is filed in the application is determined to be complete by the credit-allocating or bond-allocating agency. A "complete application" means that no more than de minimis clarification of the application is required for the agency to make a decision about the allocation of credits or the issuance of bonds requested in the application. In the case of a "multiphase project." The DDA or QCT status of the project that applies for all phases of the project is that which applied when the project first received its first allocation of LIHTC.  For purposes of 42(h)(4), the DDA or QCT status of the site of the project that applies for all phases of the project is that which applied when the first of the following occurred: (a) the building(s) in the first phase were placed in service, or (b) the bonds were issued. Multiphase projects must be fully identified in the first application of credit for any building in the project. Example of Effective Date Project A is located in a 2020 DDA that is NOT a designated DDA in 2021, 2022, or 2023. A complete application for tax credits for Project A was filed with the allocating agency on November 15, 2020. Credits are allocated to the project on January 30, 2023. Project A is eligible for the increase in basis accorded a project in the 2020 DDA because the application was filed BEFORE January 1, 2021 (the effective date for the 2021 DDA lists), and because tax credits were allocated no later than the end of the 910-day period after the filing of the complete application for an allocation of tax credits (May 14, 2023). Owners with projects that received a basis boost due to being in a QCT or DDA in 2019 or 2020, and these areas were not designated as a QCT or DDA in subsequent years, should carefully review the HUD Notice for applicability to their project.

A. J. Johnson Partners with Mid-Atlantic AHMA for July Training on Affordable Housing Training

During the month of July 2021, 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: July 14: File Management & Documentation for Affordable Housing Properties.This 2.5-hour course covers the important, but often overlooked, role that file management and documentation play in the success of affordable housing properties. A detailed discussion of how to organize a file, the documents required for each file, setting up the "property notebook," and acceptable forms of verification for all issues relating to eligibility are covered. The course also includes a basic review of resident eligibility issues, with particular emphasis on the documentation of income. July 20: Critical Policies for Every Affordable Housing Property As important as it is to understand the technical requirements of compliance for affordable housing programs, it is equally as important to have sound operational policies in place. This full-day training reviews the critical operating and protection policies that every affordable housing property should have. A full discussion of the following policies is included: Management Plans, Property Policies, Resident Transfer Policies, Waiting List Management, Sexual Harassment Policy, Criminal Screening, Reasonable Accommodations, VAWA, and Fraud Prevention & Detection. The training concludes with a discussion of the special issues relating to "layered" projects. The training is intended for site staff as well as supervisory and compliance personnel. July 22: Onsite Management Requirements of HOME Projects. This six-hour course outlines the basic requirements of the HOME Investment Partnership Program, with particular emphasis on combining HOME funds with the federal Low-Income Housing Tax Credit. The training provides an overview of HOME Program regulations, including rent rules, unit designations, income restrictions, and recertification requirements. The course concludes with a detailed discussion of combining HOME and tax credits, focusing on occupancy requirements and rents, tenant eligibility differences, handling over-income residents, and monitoring requirements. These sessions are part of the year-long collaboration between A. J. Johnson and MidAtlantic AHMA that is 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.

Supreme Court Leaves CDC Eviction Moratorium in Place

In a 5-4 vote, the Supreme Court is leaving a CDC nationwide ban on evictions due to COVID-19 in place. The Court rejected the request by a Landlord group, led by the Alabama Association of Realtors, to end the CDC moratorium on evicting millions of tenants who are not paying rent during the pandemic. Last week, the Biden Administration extended the moratorium until July 31. It is unlikely to be extended past that date. A federal judge in Washington, DC had struck down the moratorium as exceeding the CDC s authority, but put her ruling on hold. The vote by the high court will keep the ban in place until the end of July. In a brief opinion, Justice Brett Kavanaugh said that while he agrees with the ruling of the DC judge, he voted to leave the ban on evictions in place because it is due to end in a month and that time will allow for "more orderly distribution of the congressionally appropriated rental assistance funds." Also last week, the Treasury Department issued updated guidance for the Emergency Rental Assistance Program (ERAP) encouraging states and local governments to streamline the distribution of the $46.5 billion in ERA funding. Chief Justice John Roberts and the court s three liberal members also voted to keep the moratorium in place. The eviction ban was initially put in place last year to provide protection for renters out of concern that having families lose their homes and move into shelters or share crowded spaces with friends or relatives during the pandemic would increase the spread of the disease. According to HUD, at the end of March 2021, 6.4 million American households were behind on their rent. As of June 7, according to the U.S. Census Bureau s Household Pulse Survey, about 3.2 million people in the U.S. said they face eviction in the next two months.

A. J. Johnson to Offer Live Webinar on Reasonable Modifications and Accommodations Under Section 504 and the Fair Housing Act

A. J. Johnson will be conducting a webinar on July 1, 2021 on Reasonable Modification and Accommodation Requirements Under Section 504 and the Fair Housing Act.  The Webinar will be held from 1:00 PM to 2:30 PM Eastern time. The training will focus on the specific duties and responsibilities of multifamily rental managers with regard to accommodating the needs of disabled applicants and residents. The difference between a "modification" and an "accommodation" will be covered, as well as who is responsible for paying for these modifications and accommodations. Multiple court cases will be used to illustrate the requirements of the law. There will be adequate time for questions and answers relating to specific 504 or Fair Housing Accommodation/Modification issues. Those interested in participating in the Webinar may register on the A. J. Johnson Consulting Services website (www.ajjcs.net) under "Training Schedule."

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