Partner Novogradac & Company LLP€¦ · 7.8 Mil . 100% . 7.8 Mil . 255k . 10 . 2.55 Mil $ x $ $ x...

Copyright © 2014 Novogradac & Company LLP All rights reserved

Charles A. Rhuda III, CPA Partner Novogradac & Company LLP [email protected]


Developer/ Owner

Intro

Equity

Bonds

DEBT

Section 142(d) Section 42

Investor

Total Project Costs

Bonds

Low-Interest Debt


“AAA” “Aaa”

Outline

Players in a Bond Transaction

Bond Financing Timeline

4% Low-Income Housing Tax Credits

Major Bond Rules

Multi-Building Election


State Allocating Agency

Public Bonds

Interest Payments

Bondholders


Bondholders

Private Bonds

Interest Payments

Private Sector


Airports

Student Loans

Single-Family Housing

Industrial Development

Interest Payments

Multi-Family Rental Housing

Bondholders


Private Activity Tax-Exempt Bonds

Section 142(d)

$890mil

NJ population: 2014 Approx x Approx

8.9 mil

$100 $890 mil

Greater of $100 per capita OR $296,825,000

IRS Notice 2014-12


“AAA” “Aaa”

Outline

Tax-Exempt Bond Overview



Major Bond Rules



Developer/ Owner



Bond Application

$890mil


Inducement Resolution

Public hearing or “TEFRA” requirement

Bond Issuer

(City/County)

At least 14 days

prior to hearing


Credit Enhancer

Bondholders

Trustee

Bond Proceeds

Bond Proceeds

Project

Trust Indenture

Interest Payments

Mortgage Note

Bonds

“AAA” “Aaa”

Interest Payments

Bond Purchase

Agreement

Underwriter

Lender

Bond Issuer

(City/County)

Loan Agreement

Regulatory Agreement

Tax Certificate

DRAW Req

Invoices

Public Bond Issue


Credit Enhancer

Bondholders

Project

Mortgage Note

“AAA” “Aaa”

Bond Proceeds

Interest Payments

Underwriter

(City/County)

Bond Purchase

Agreement

Trustee

Direct Bond Issue

Bond Issuer

Loan Agreement

Regulatory Agreement

Tax Certificate

Trust Indenture

Interest Payments

Bond Proceeds Lender

Bondholder

Invoices

DRAW Req

Bond Proceeds


Time

Bal. x

Rat

e

Interest Fully Funded at Day One vs. Drawdown

Time Ba

l. x R

ate

Interest Fully Funded at Day One vs. Drawdown


“AAA” “Aaa”

Outline




Major Bond Rules



Preparation Period

Bond Financing Period

Construction Period Permanent Period

(Approx 16 wks)

(Approx 24 mos.) (15-35 yrs)


1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Preparation Period

Bond Financing Period (Approx 16 wks)

Apply for Bond Volume Cap Allocation

Assemble Bond Finance Team

Receive Bond Volume Cap Allocation

Bond Application

Kick-Off Meeting/Call

Circulate Draft Documents

Publish TEFRA Notice

Hold TEFRA Hearing Submit Substantially Final

Documents to Issuer

Issuer Approves Bond Resolution

Sell Bonds

Close Financing


Preparation Period

Bond Financing Period

Construction Period Permanent Period

(Approx 16 wks)

(Approx 24 mos.) (15-35 yrs)

Month 1 Start construction

Month 12 50% Construction

Completion

Month 18 Temporary

Certificate of Occupancy

Month 24 Conversion

Equity Contr. Equity Contr. Equity Contr. Equity Contr.

Example Equity Contribution Schedule


“AAA” “Aaa”

Outline




Major Bond Rules



Section 42 Section 142(d)

Developer/ Owner

Bonds

DEBT

Total Project Costs

Bonds

Low-Interest Debt

“Low-Income Housing Tax Credit”

• Income limits • Rent limits • Suitability for occupancy

Tax Liability

• Partnership • LLC • S-Corp

Equity

Investor Tax Liability

x 10 years

50% Test


Developer/ Owner



9%

LIHTCs

Population-based pool

Bond Application

Tax Credit Application

Section 42 Section 142(d)


$ x $ x $ x $

10 Mil 100%

10 Mil

10

Developer/ Owner

Eligible basis Applicable fraction Qualified basis Tax credit percentage Annual tax credits Ten years Total tax credits

Total project costs = $11 Mil


$ x $

$ x $

10 Mil 100%

10 Mil

10

Eligible basis Applicable fraction Qualified basis

Annual tax credits Ten years Total tax credits


JUL ‘11 3.29%

329k

3.29 Mil $3.0mil

PV of Total Credits = 30% x QB


$ x $

$ x $

10 Mil 100%

10 Mil

10




$3.0mil PV of Total Credits = 30% x QB

320k

3.20 Mil

JUL ‘11 3.29%

OCT ‘11 3.20%


$ x $

$ x $

10 Mil 100%

10 Mil

10




320k

3.20 Mil

3.20%

Month placed in service

Bond closing

(Default)

(By election)


6 Mil 100%

6 Mil

196k 10

1.96 Mil

$ x $

$ x $

4 Mil 100%

4 Mil

126k 10

1.26 Mil

$ x $

$ x $

3.20%




Month rehab completed

(Default)

IRC Section 42(b)(1)

Month acquisition placed in service

Acq Rehab

$3.22 Mil

3.16% 3.27%

$ $

$ $


3.20%

3.16%

“QCT” =

3.27%

7.8 Mil 100%

7.8 Mil

255k 10

2.55 Mil

$ x $

x

4 Mil 100%

4 Mil

126k 10

1.26 Mil

$ x $

x




Acq Rehab

$3.81 Mil

$ $

$ $


30% Eligible Basis Boost • Available to…

– Projects located in Difficult Development Areas (DDAs), which are areas that have “high construction, land, and utility costs relative to area median gross income.” IRC §42(d)(5)(C)(iii)

– Projects located in Qualified Census Tracts (QCTs), which are census tracts “in which 50 percent or more of the household have an income which is less than 60 percent of the area median income for such year or which has a poverty rate of at least 25 percent.” IRC §42(d)(5)(C)(ii)

– NOT APPLICABLE TO BOND/4% DEALS: 9% projects not already in a DDA or QCT that the state allocating agency chooses to award up to the 30% basis boost so that the project may be “financially feasible.” Housing and Economic Recovery Act of 2008 (HERA)


$3.24M

$11 Mil

Equity 29%

x

7.8 Mil 100%

7.8 Mil 3.27%

255k 10

2.55 Mil

4 Mil 100%

4 Mil 3.16%

126k 10

1.26 Mil

$ x $ x



Acq Rehab

$3.81 Mil

x $ $

$ x $ x $ x $


7.8 Mil 100%

7.8 Mil 3.27%

255k 10

2.55 Mil

4 Mil 100%

4 Mil 3.16%

126k 10

1.26 Mil

$ x $ x


$3.81 Mil

x $ $

$ x $ x $ x $

$11 Mil

x

Bonds


Acq Rehab “Aggregate Basis”

Fixed Assets

$10.7 Mil

50% $5.35 Mil

49.9999%

49.9999%

$1.62M Equity 14.5%

>22% >37%


7.8 Mil 100%

7.8 Mil 3.27%

255k 10

2.55 Mil

4 Mil 100%

4 Mil 3.16%

126k 10

1.26 Mil

$ x $ x


$3.81 Mil

x $ $

$ x $ x $ x $

$3.24M

$11 Mil

Equity 29%

Bonds > 54%


Acq Rehab “Aggregate Basis”

Fixed Assets

$10.7 Mil

$5.35 Mil $6M

$6M

x


“AAA” “Aaa”

Outline







“Aggregate Basis”

Fixed Assets

Bond issuance costs (BIC) paid from bond proceeds ≤ $120k

2% “Cost of Issuance Limitation”

$6M ($6 mil x 2%)



Fixed Assets

$6M

“Good Costs/Bad Costs” 95% of proceeds must be used for “good costs”

$5.7 mil

Good Costs Land and depreciable costs for income tax purposes

< 25% Land



Fixed Assets

$6M


≤ $300k

Bad Costs Bond issuance costs and underwriting

Loan origination fees amortized over the perm loan period

Other intangible assets



60 days

“Good Costs”

“Bad Costs”

Land and depreciable costs for income tax purposes

Not reimbursable with bond proceeds

Bond issuance costs and underwriting, loan origination fees amortized over the perm loan period, other intangible assets

≥ 95% of bond

proceeds

< 5% of bond

proceeds


“AAA” “Aaa”

Outline





Major Bond Rules


Building A Building B

Low-income qualified

18.75% 68.75%

43.75% Combined

Form 8609, Line 8b

Multiple Building Projects


www.taxcredithousing.com > LIHTC > IRS Guidance > IRS LIHTC Newsletters > Issue #29, February 2008

“A taxpayer can let each building stand on its own, or choose to include some or all of the buildings in the project.”




18.75% 68.75%

Form 8609

Building D

100%

“Project”

Building C

100%

Form 8609

Form 8609

Form 8609

Statement

Project Building A Building B Building C Building D

Credits 37.5k

137.5k 200k

200k 575k

See 8823 Guide, Section 11f


“Project” “Project”

Form 8609

Form 8609

Form 8609

Form 8609

Building B

68.75%

Building D

100%

Building A

18.75%

Building C

100%



Statement

Project 1 Building A Building C

Project 2 Building B Building D

Credits 37.5k

200k 237.5k

Credits 137.5k

200k 337.5k


Form 8609

Form 8609

Form 8609

Form 8609

Building B

68.75%

Building D

100%

Building A

18.75%

Building C

100%


“Project”


Statement

Project 1 Building A Building B

Credits 37.5k

137.5k 175k


Form 8609

Form 8609

Form 8609

Form 8609

Building B

68.75%

Building D

100%

Building A

18.75%

Building C

100%


“Project”


Statement

Project Building A Building B Building C

Credits 37.5k

137.5k 200k

375k




18.75% 68.75%

Form 8609

Building D

100%

Building C

100%

Form 8609

Form 8609

Form 8609

“Project”




18.75% 68.75%

Form 8609

Building D

100%

Building C

100%

Form 8609

Form 8609

Form 8609


“Project” “Project”

Form 8609

Form 8609

Form 8609

Form 8609

Building B

68.75%

Building D

100%

Building A

18.75%

Building C

100%



Copyright © 2014 Novogradac & Company LLP All rights reserved See 8823 Guide, Section 11f

Tenant transfers • Between buildings in the same “project”

• units swap status; no new certification required • watch sizes for applicable fraction

• Between “projects” • It’s like a new move-in; have to complete an initial income certification

again


Housing and Economic Recovery Act of 2008



18.75% 68.75%

Form 8609

100%

“Project”

100%

Form 8609


Building D Building C

Form 8609 Form 8609 “Project”

Annual recertifications NOT required

Annual recertifications required


Charles A. Rhuda III, CPA Partner Novogradac & Company LLP [email protected]

Partner Novogradac & Company LLP€¦ · 7.8 Mil . 100% . 7.8 Mil . 255k . 10 . 2.55 Mil $ x $ $ x...

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Transcript of Partner Novogradac & Company LLP€¦ · 7.8 Mil . 100% . 7.8 Mil . 255k . 10 . 2.55 Mil $ x $ $ x...