Appropriations Act Contains Two Major Changes to the LIHTC Program
person
A.J. Johnson
today
03/24/2018
The "Consolidated Appropriations Act, 2018" was signed into law by the President on March 23, 2018. The law includes two major changes to the Low-Income Housing Tax Credit Program (IRC §42).
Increase in Credits
The amount of credit states will be able to allocate will be increased by 12.5%, beginning in 2018 and, unless extended, ending in 2021. This increases the 2018 allocation from $2.40 per capita in 2018 to $2.70. The small state minimum amount is increased from $2,760,000 to $3,105,000. For 2019, 2020, and 2021, the amount of credit will be increased by the inflation rate. Unless extended past 2021, beginning in 2022, the amount of credit available will be reduced by 12.5%. While less than the 50% increase sought by the affordable housing industry, this additional credit will reduce - at least somewhat - the negative impact of the recent tax cuts on the amount of affordable housing that will be built.
Average Income Test
The bill includes a provision that affordable housing advocates have been seeking for a number of years, in that LIHTC projects will now be able to select from a third set-aside - an "Average Income Test." In addition to the 20/50 and 40/60 minimum set-aside tests, the new set-aside will be a 40/60 (average) test. If this new test is elected, a project will be required to rent at least 40 percent (25 percent in New York City) of the residential units in the project to households whose income does not exceed the imputed income limit designated by the owner of the project for a respective unit.
The owner of the project will designate the imputed income limit for each low-income unit. The average of the imputed income limit may not exceed 60 percent of the area median gross income. The imputed income limits for units shall be 20 percent, 30 percent, 40 percent, 50 percent, 60 percent, 70 percent, or 80 percent of the area median gross income.
This new set-aside will permit a broader range of incomes in LIHTC projects and increase the feasibility of many deals, especially in high cost areas.
The income average test will also impact compliance with the Next Available Unit Rule and Deep Rent Skewed Projects. I will be testing scenarios using the average income test and will provide a more detailed description to our clients on the operational issues relating to the rule.
This new election is in effect now for all elections made after March 23, 2018. However, the IRS will have to amend and make available a revised Form 8609. I recommend that owners who will be claiming credits beginning in 2018 who have not yet filed 8609s with the IRS delay completion of the 8609 until the revised form is available. This new test will not be available to owners who have already filed their 8609s with the IRS since the minimum set-aside is an irrevocable election.