Copyright © 2014 Novogradac & Company LLP All rights reserved
Charles A. Rhuda III, CPA Partner Novogradac & Company LLP [email protected]
Copyright © 2014 Novogradac & Company LLP All rights reserved
Developer/ Owner
Intro
Equity
Bonds
DEBT
Section 142(d) Section 42
Investor
Total Project Costs
Bonds
Low-Interest Debt
Copyright © 2014 Novogradac & Company LLP All rights reserved
“AAA” “Aaa”
Outline
Players in a Bond Transaction
Bond Financing Timeline
4% Low-Income Housing Tax Credits
Major Bond Rules
Multi-Building Election
Copyright © 2014 Novogradac & Company LLP All rights reserved
State Allocating Agency
Public Bonds
Interest Payments
Bondholders
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Bondholders
Private Bonds
Interest Payments
Private Sector
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Airports
Student Loans
Single-Family Housing
Industrial Development
Interest Payments
Multi-Family Rental Housing
Bondholders
State Allocating Agency
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
Copyright © 2014 Novogradac & Company LLP All rights reserved
“AAA” “Aaa”
Outline
Tax-Exempt Bond Overview
Bond Financing Timeline
4% Low-Income Housing Tax Credits
Major Bond Rules
Multi-Building Election
Copyright © 2014 Novogradac & Company LLP All rights reserved
Developer/ Owner
State Allocating Agency
Private Activity Tax-Exempt Bonds
Bond Application
$890mil
Copyright © 2014 Novogradac & Company LLP All rights reserved
Inducement Resolution
Public hearing or “TEFRA” requirement
Bond Issuer
(City/County)
At least 14 days
prior to hearing
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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
Copyright © 2014 Novogradac & Company LLP All rights reserved
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
Copyright © 2014 Novogradac & Company LLP All rights reserved
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
Copyright © 2014 Novogradac & Company LLP All rights reserved
“AAA” “Aaa”
Outline
Tax-Exempt Bond Overview
Players in a Bond Transaction
4% Low-Income Housing Tax Credits
Major Bond Rules
Multi-Building Election
Copyright © 2014 Novogradac & Company LLP All rights reserved
Preparation Period
Bond Financing Period
Construction Period Permanent Period
(Approx 16 wks)
(Approx 24 mos.) (15-35 yrs)
Copyright © 2014 Novogradac & Company LLP All rights reserved
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
Copyright © 2014 Novogradac & Company LLP All rights reserved
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
Copyright © 2014 Novogradac & Company LLP All rights reserved
“AAA” “Aaa”
Outline
Tax-Exempt Bond Overview
Players in a Bond Transaction
Bond Financing Timeline
Major Bond Rules
Multi-Building Election
Copyright © 2014 Novogradac & Company LLP All rights reserved
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
Copyright © 2014 Novogradac & Company LLP All rights reserved
Developer/ Owner
State Allocating Agency
Private Activity Tax-Exempt Bonds
9%
LIHTCs
Population-based pool
Bond Application
Tax Credit Application
Section 42 Section 142(d)
Copyright © 2014 Novogradac & Company LLP All rights reserved
$ 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
Copyright © 2014 Novogradac & Company LLP All rights reserved
$ x $
$ x $
10 Mil 100%
10 Mil
10
Eligible basis Applicable fraction Qualified basis
Annual tax credits Ten years Total tax credits
Total project costs = $11 Mil
JUL ‘11 3.29%
329k
3.29 Mil $3.0mil
PV of Total Credits = 30% x QB
Copyright © 2014 Novogradac & Company LLP All rights reserved
$ x $
$ x $
10 Mil 100%
10 Mil
10
Eligible basis Applicable fraction Qualified basis
Annual tax credits Ten years Total tax credits
Total project costs = $11 Mil
$3.0mil PV of Total Credits = 30% x QB
320k
3.20 Mil
JUL ‘11 3.29%
OCT ‘11 3.20%
Copyright © 2014 Novogradac & Company LLP All rights reserved
$ x $
$ x $
10 Mil 100%
10 Mil
10
Eligible basis Applicable fraction Qualified basis
Annual tax credits Ten years Total tax credits
Total project costs = $11 Mil
320k
3.20 Mil
3.20%
Month placed in service
Bond closing
(Default)
(By election)
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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%
Eligible basis Applicable fraction Qualified basis
Annual tax credits Ten years Total tax credits
Total project costs = $11 Mil
Month rehab completed
(Default)
IRC Section 42(b)(1)
Month acquisition placed in service
Acq Rehab
$3.22 Mil
3.16% 3.27%
$ $
$ $
Copyright © 2014 Novogradac & Company LLP All rights reserved
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
Eligible basis Applicable fraction Qualified basis
Annual tax credits Ten years Total tax credits
Total project costs = $11 Mil
Acq Rehab
$3.81 Mil
$ $
$ $
Copyright © 2014 Novogradac & Company LLP All rights reserved
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)
Copyright © 2014 Novogradac & Company LLP All rights reserved
$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
Eligible basis Applicable fraction Qualified basis Tax credit percentage Annual tax credits Ten years Total tax credits
Total project costs = $11 Mil
Acq Rehab
$3.81 Mil
x $ $
$ x $ x $ x $
Copyright © 2014 Novogradac & Company LLP All rights reserved
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
Eligible basis Applicable fraction Qualified basis Tax credit percentage Annual tax credits Ten years Total tax credits
$3.81 Mil
x $ $
$ x $ x $ x $
$11 Mil
x
Bonds
Total project costs = $11 Mil
Acq Rehab “Aggregate Basis”
Fixed Assets
$10.7 Mil
50% $5.35 Mil
49.9999%
49.9999%
$1.62M Equity 14.5%
>22% >37%
Copyright © 2014 Novogradac & Company LLP All rights reserved
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
Eligible basis Applicable fraction Qualified basis Tax credit percentage Annual tax credits Ten years Total tax credits
$3.81 Mil
x $ $
$ x $ x $ x $
$3.24M
$11 Mil
Equity 29%
Bonds > 54%
Total project costs = $11 Mil
Acq Rehab “Aggregate Basis”
Fixed Assets
$10.7 Mil
$5.35 Mil $6M
$6M
x
Copyright © 2014 Novogradac & Company LLP All rights reserved
“AAA” “Aaa”
Outline
Tax-Exempt Bond Overview
Players in a Bond Transaction
Bond Financing Timeline
4% Low-Income Housing Tax Credits
Multi-Building Election
Copyright © 2014 Novogradac & Company LLP All rights reserved
“Aggregate Basis”
Fixed Assets
Bond issuance costs (BIC) paid from bond proceeds ≤ $120k
2% “Cost of Issuance Limitation”
$6M ($6 mil x 2%)
Copyright © 2014 Novogradac & Company LLP All rights reserved
“Aggregate Basis”
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
Copyright © 2014 Novogradac & Company LLP All rights reserved
“Aggregate Basis”
Fixed Assets
$6M
“Good Costs/Bad Costs” 95% of proceeds must be used for “good costs”
≤ $300k
Bad Costs Bond issuance costs and underwriting
Loan origination fees amortized over the perm loan period
Other intangible assets
Copyright © 2014 Novogradac & Company LLP All rights reserved
“Good Costs/Bad Costs” 95% of proceeds must be used for “good costs”
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
Copyright © 2014 Novogradac & Company LLP All rights reserved
“AAA” “Aaa”
Outline
Tax-Exempt Bond Overview
Players in a Bond Transaction
Bond Financing Timeline
4% Low-Income Housing Tax Credits
Major Bond Rules
Copyright © 2014 Novogradac & Company LLP All rights reserved
Building A Building B
Low-income qualified
18.75% 68.75%
43.75% Combined
Form 8609, Line 8b
Multiple Building Projects
Copyright © 2014 Novogradac & Company LLP All rights reserved
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.”
Copyright © 2014 Novogradac & Company LLP All rights reserved
Building A Building B
Low-income qualified
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
Copyright © 2014 Novogradac & Company LLP All rights reserved
“Project” “Project”
Form 8609
Form 8609
Form 8609
Form 8609
Building B
68.75%
Building D
100%
Building A
18.75%
Building C
100%
Low-income qualified
See 8823 Guide, Section 11f
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
Copyright © 2014 Novogradac & Company LLP All rights reserved
Form 8609
Form 8609
Form 8609
Form 8609
Building B
68.75%
Building D
100%
Building A
18.75%
Building C
100%
Low-income qualified
“Project”
See 8823 Guide, Section 11f
Statement
Project 1 Building A Building B
Credits 37.5k
137.5k 175k
Copyright © 2014 Novogradac & Company LLP All rights reserved
Form 8609
Form 8609
Form 8609
Form 8609
Building B
68.75%
Building D
100%
Building A
18.75%
Building C
100%
Low-income qualified
“Project”
See 8823 Guide, Section 11f
Statement
Project Building A Building B Building C
Credits 37.5k
137.5k 200k
375k
Copyright © 2014 Novogradac & Company LLP All rights reserved
Building A Building B
Low-income qualified
18.75% 68.75%
Form 8609
Building D
100%
Building C
100%
Form 8609
Form 8609
Form 8609
“Project”
Copyright © 2014 Novogradac & Company LLP All rights reserved
Building A Building B
Low-income qualified
18.75% 68.75%
Form 8609
Building D
100%
Building C
100%
Form 8609
Form 8609
Form 8609
Copyright © 2014 Novogradac & Company LLP All rights reserved
“Project” “Project”
Form 8609
Form 8609
Form 8609
Form 8609
Building B
68.75%
Building D
100%
Building A
18.75%
Building C
100%
Low-income qualified
See 8823 Guide, Section 11f
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
Copyright © 2014 Novogradac & Company LLP All rights reserved
Housing and Economic Recovery Act of 2008
Copyright © 2014 Novogradac & Company LLP All rights reserved
Building A Building B
18.75% 68.75%
Form 8609
100%
“Project”
100%
Form 8609
Low-income qualified
Building D Building C
Form 8609 Form 8609 “Project”
Annual recertifications NOT required
Annual recertifications required
Copyright © 2014 Novogradac & Company LLP All rights reserved
Charles A. Rhuda III, CPA Partner Novogradac & Company LLP [email protected]
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