Richard S. Goldstein Forrest D. Milder November 20, 2008

1. Housing Tax Credit and Multifamily Bond Provisions of HR 3221—THE HOUSING AND ECONOMIC RECOVERY ACT OF 2008 Richard S. Goldstein Forrest D. Milder November 20, 2008

2. STATUS • Passed by the House on July 23 by a vote of 272 to152 • Final passage by the Senate on July 26, exactly as passed by the House

3. STATUS (Cont.) • President Bush signed the bill on July 30, 2008, which becomes the “date of enactment” for purposes of certain effective date provisions

4. ALTERNATIVE MINIMUM TAX PROVISIONS (AMT) • Housing credits and rehabilitation credits (under Section 47) may be used to offset AMT—effective for buildings placed in service after 2007 for housing credits and for rehabilitation expenditures incurred after 2007

5. ALTERNATIVE MINIMUM TAX PROVISIONS (Cont.) • Interest on residential rental bonds, mortgage revenue bonds and veterans mortgage bonds exempt from AMT—effective for bonds issued after enactment

6. TEMPORARY INCREASE IN HOUSING CREDITS • Per capita allocation increased by $0.20 for each of 2008 and 2009— to $2.20 in 2008; the 2009 increase will be after the inflation adjustment • Small state minimum increased by 10% for 2008 and 2009

7. EFFECTIVE DATES • Unless otherwise noted, provisions will generally apply to buildings placed in service after date of enactment

8. EFFECTIVE DATES (Cont.) • Result is that projects that previously received credit allocations or bond financing will be able to take advantage of many of the bill’s provisions • State credit agencies will need to adopt procedures to deal with potential additional credit allocations

9. CREDIT RATE • Provides a credit percentage of not less than 9%, effective for buildings placed in service after enactment and before December 31, 2013 (i.e., provision is “sunsetted”) • IRS Notice 2008-106 permits owners to use the 9% credit even if there was a prior lock-in at a lower rate

10. CREDIT RATE (Cont.) • Applies to non-federally subsidized new construction and substantial rehab • No change for “4%” credit for bond financed projects and acquisition of existing buildings—rate will continue to float, as under current law

11. DEFINITION OF “FEDERALLY SUBSIDIZED” BUILDINGS • Eliminates the concept of “below market Federal loans” • Result is that new construction and sub rehab expenditures will qualify for 9% credit even if the project receives a below market Federal loan

12. DEFINITION OF “FEDERALLY SUBSIDIZED” BUILDINGS(Cont.) • Tax-exempt bond financed projects still considered federally subsidized and therefore only eligible for the 4% credit • Example: HOPE VI and HOME financed projects will qualify for 9% credits even if interest rate is below the applicable Federal rate

13. CHANGES TO DEFINITION OF ELIGIBLE BASIS • Any buildings designated by housing credit agency as needing an increase in credit for financial feasibility may have eligible basis increased by agency by up to 30% by treating projects as being in difficult development areas − does NOT apply to bond financed projects

14. CHANGES TO DEFINITION OF ELIGIBLE BASIS (Cont.) • Joint Committee on Taxation (JCT) explanation provides that it is expected that housing credit agencies shall set standards for determining which areas shall be treated as Difficult Development Area (DDAs) and which projects shall receive additional credits in their QAP and publicly express reasons for increases

15. CHANGES TO DEFINITION OF ELIGIBLE BASIS (Cont.) • Minimum rehab threshold doubled to greater of $6000 per low income unit (to be adjusted for inflation) or 20% of adjusted basis − effective for credit allocations made and bonds “allocated” after enactment

16. CHANGES TO DEFINITION OF ELIGIBLE BASIS (Cont.) • Allowable basis for community service facilities increased to 25% of first $15 Million of eligible basis plus 10% of additional basis

17. CHANGES TO DEFINITION OF ELIGIBLE BASIS (Cont.) • Treatment of federal grants is clarified: • Rental, operating and interest reduction payments not considered federal grants requiring basis reduction • JCT report language clarifies that loans made from the proceeds of federal grants do not require basis reduction regardless of interest rate on loan (correcting a mistake in House report)

18. CHANGES TO RULES FOR ACQUISITION CREDITS • 10 percent related party rule (identity of interest between buyer and seller) liberalized to 50%

19. CHANGES TO RULES FOR ACQUISITION CREDITS (Cont.) • New exception to ten year rule— the ten year rule does not apply to projects substantially assisted, financed or operated under HUD or RHS housing programs or similar state housing programs—replaces the Treasury waiver provisions re HUD and RHS properties

20. SIMPLIFICATION PROVISIONS • Prohibition on Section 8 Moderate Rehabilitation repealed • Period for satisfying ten percent test for carryover allocations increased to one year from date of allocation

21. REPEAL OF RECAPTURE BONDS • Recapture bond requirement on disposition of buildings or interests therein is repealed • Replaced with extended period for the statute of limitations—3 years following the date that the taxpayer notifies Treasury of a recapture event

22. REPEAL OF RECAPTURE BONDS (Cont.) • Effective for dispositions after enactment and for dispositions prior to enactment if taxpayer elects application of new provisions • Result is that outstanding bonds may be retired if taxpayer elects application of these provisions; election procedure not clear • Revenue Procedure 2008-60 provides procedures for taxpayers electing to discontinue prior recapture bonds

23. MISCELLANEOUS CHANGES • QAPs must take into account energy efficiency and historic nature of projects—effective for allocations after 2008 • Student rule amended—new exception for students previously in foster care—effective for determinations after enactment

24. MISCELLANEOUS CHANGES (Cont.) • Income limits for rural projects (as defined in Section 520 of Housing Act of 1949) measured by reference to greater of area median income or national non-metro median income—does not apply to bond financed projects—effective for income determinations made after enactment

25. GENERAL PUBLIC USE • Project may still qualify for housing credits even if occupancy restrictions or preferences that favor tenants with: • Special needs, or • Are members of a specified group under federal or state housing program or policy that supports housing for such group, or • Are involved in artistic or literary activities

26. GENERAL PUBLIC USE (Cont.) • However, housing must still be consistent with Federal Fair Housing laws • JCT Report language clarifies housing for social organizations, employer sponsored housing and various health care facilities do not qualify for housing credits, maintaining present law on the subject

27. GAO STUDY • GAO must submit report to Congress by 12/31/2012 regarding the implementation of changes made by the Act • Study must include an analysis of distribution of credit allocations before and after the enactment of Act

28. MULTIFAMILY HOUSING BONDS • Multifamily housing bonds may be refunded (i.e., no new volume cap required) if: • Refunding bond is issued within six months of repayment of loan made with original bonds • Refunding bond issued within four years of original issuance • Maturity of refunding bond not later than 34 years after original bond is issued • TEFRA approval process is followed

29. MULTIFAMILY HOUSING BONDS (Cont.) • Second (refunding bond) does not generate “automatic” credits • Effective for repayments of bonds made after enactment

30. HOUSING BOND AND CREDIT COORDINATION • Next available unit rule for bond/credit projects applied on a building (not project) basis • Housing credit student rules applied to bond projects

31. HOUSING BOND AND CREDIT COORDINATION (Cont.) • Housing credit single room occupancy rules applied to bond projects • New rules effective for determinations after enactment with respect to bonds issued before and after enactment

32. AREA MEDIAN INCOME RULES • Income determinations for bond and housing credit projects may not decrease for any year after 2008 • For “HUD Hold Harmless” projects, median incomes may be increased by change in AMI from prior year

33. AREA MEDIAN INCOME RULES (Cont.) • HUD Hold Harmless projects are those whose incomes levels were not decreased after change in income determination methodology adopted by HUD • Result is that in affected areas, income and rent determinations for older projects will be higher than new projects

34. INCOME RE-CERTIFICATIONS • Income re-certifications not required for 100% low income projects for bond and credit projects—effective upon enactment for all such projects

35. HOUSING BOND VOLUME CAP • Volume cap for residential rental and mortgage revenue bonds increased by $11 Billion for 2008 • States share in increase on a per capita basis • May be carried forward through 2010 • Bonds may be used to refinance sub-prime loans

36. HOUSING CREDIT COORDINATION ACT Streamlines FHA multifamily insurance processing for Housing Credit transactions Allows project-based voucher terms of up to 15 years

37. HOUSING CREDIT COORDINATION ACT (Cont.) Requires state Housing Credit allocating agencies to report Housing Credit tenant data to HUD annually, including tenant race, ethnicity, family composition, age, income, use of rental assistance or other similar assistance, disability status, and monthly rental payments 

38. HOUSING CREDIT COORDINATION ACT (Cont.) Allows PHAs to set project-based voucher rents at up to 110 percent of the HUD Fair Market rent in units with Housing Credits, even if this rent level exceeds the maximum Housing Credit rent, and allows PHAs to agree in advance not to reduce the rent below the initial rent during the term of the contract 

39. HOUSING CREDIT COORDINATION ACT (Cont.) Eliminates the requirement that PHAs make a separate rent reasonableness determination for tenant-based vouchers used in Housing Credit units if the rent charged is at or below the rent for similarly assisted units not occupied by voucher holders 

40. Thank You Any Questions?