News

Effect of Sequestration on Affordable Housing

As anyone who watches the news knows, if Congress does not act by March 1, 2013, sequestration will kick in. When people talk about sequestration, or "sequester cuts, they are referring to a series of draconian budget cuts, totaling $1.2 trillion that are scheduled to go into effect on March 1, 2013. These cuts are evenly split between defense and domestic discretionary spending (with some exemptions, such as Social Security, Medicare, and veterans' benefits). So, how will these cuts affect affordable housing? Not all programs will be impacted; the Low-Income Housing Tax Credit Program is safe (for now). This is because the Tax Act passed in December extended the 9% credit floor for all of 2013, and also retroactively excluded the military Basic Allowance for Housing (BAH) until January 1, 2014 (but only for certain areas of the Country). However, when the sequester hits, may HUD and Rural Development programs will take a hit. Project-based Section 8 will be cut by 8%, and 250,000 housing choice vouchers will be eliminated, meaning up to 1 million people will lose their housing assistance. The only HUD program that could be exempted from the cuts is the HUD Veterans Affairs Supportive Housing Program (HUD-VASH), which provides vouchers for homeless veterans. Owners with project-based rental assistance and those with significant numbers of voucher residents should be prepared for the possibility of these cuts and plan accordingly.

New Tool for Landlords – Cash Payments Without the Cash

There are many reasons why most landlords do not accept cash rent payments. Paper money creates dangers for both renters and landlords and is much more subject to loss or theft. However, many renters do not have bank accounts and want to pay in cash. This is especially true of lower-income renters. A new service - PayNearMe Express - now makes it possible for renters to pay in cash, without the landlord having to accept cash. This is a new self-service system from the cash transaction network. The system makes it possible for any business to accept cash remotely for goods or services (like rent) from customers through more than 8,600 7-Eleven and ACE Cash Express stores. Renters simply print out or display a PaySlip on their phone at a 7-Eleven. The slip is scanned and they hand over the required cash, which goes directly to the landlord s account. PayNearMe allows businesses to accept cash 24-hours a day. Transactions are 100% guaranteed, with no risk of charge-backs or bounced checks. This can be a significant tool for landlords in terms of increased collections and provides a great marketing tool. The easier you make it for your tenants who prefer to use cash to pay you, the greater the likelihood they will pay their rent on time. You are essentially adding scores of locations where your rent can be paid, giving your residents more opportunities to pay you - and fewer reasons not to. This method eliminates the risk associated with collecting cash on site and can eliminate the hassle of money orders. Offering this option to your residents will also make it more likely they will stay at your complex. One of the major advantages to this system is that PayNearMe lets you know in real time the moment payment is received in-store. If this is an option that interests you, I recommend you visit PayNearMe.com for an overview of the process.

No More Paper Checks for Federal Retirement Benefits

In an effort to save money, Federal officials began retiring paper checks in favor of direct deposits and prepaid 'Direct Express' debit cards in May, 2011. Since then, the Treasury Department has required all new recipients of payments from federal benefits programs - including Social Security, Supplemental Security Income disability, Veterans Affairs and government pension plans - to sign up for electronic payments. Now, the U.S. Treasury Department will stop issuing paper checks for Social Security and other federal benefit payments and disburse payments instead only in the form of direct deposits to bank or credit union accounts or debit cards. You should keep this in mind with regard to future verification of federal benefits. It will no longer be possible to view Treasury checks as a method of verifying these benefits.

Social Security Benefits Verification Now Available Online

Social Security recipients can now get their benefits verification letter and conduct other business online, as part of enhanced Web services introduced on January 7, 2013 by the federal government. The letters, which state the amount of the recipient s monthly benefit, may be used to verify income for affordable housing programs. The letters are now available online for those who are retired and receiving Social Security, as well as those who receive Supplemental Security Income, which pays benefits to those who are disabled. Recipients can also change their address and manage electronic delivery of their monthly benefits payment on line. The availability of the letters and the other options represent the first "significant expansion" of the agency s online service, known as mySocialSecurity, since it debuted in the spring of 2012. To access information online users must set up an account, which requires them to answer questions to verify their identity before choosing a user name and password. Users can also opt for enhanced security, which requires providing additional information-such as a partial credit-card number. The system s verification system has been set up to balance convenience with the need for protecting an individual s privacy. About three million people have created accounts so far. Previously, recipients seeking benefits verification letters had to wait for one to arrive in the mail or visit a Social Security office in person. Last year, the agency processed about nine million requests for such letters. Verification letters are separate from the annual notification to Social Security recipients of any increase in their benefits due to cost-of-living adjustments. Managers of affordable housing properties should be aware of this new service and should inform residents and applicants of this program.

Section 45L Energy Tax Credit

Section 45L Energy Tax Credit   When Congress passed the American Taxpayer Relief Act of 2012, it extended the Section 45L tax credit, which provides eligible contractors of homes -including apartments -, with a tax credit of $2,000 per energy efficient unit. The bill extended this credit until 12/31/13.   Because of the energy efficient standards met by most apartments built in the last five years, most current apartments exceed the standards required by the program. To qualify, the complex must be:   *Located in the U.S.; *Was substantially completed after August 8, 2005 but before the end of 2013; and *Meet the energy saving requirements of 45L of the IRC.   The credit actually goes to the "eligible contractor," which is the person who built the home. This person must own and have basis in the apartment complex during the construction. This does not have to be the general contractor; a developer will meet the requirement as an "eligible contractor." It may be an individual, trust, partnership, association, company or corporation.   The apartment complex must provide self-contained dwelling units, and may be no more than three stories in height.   While the depreciable basis of the building is reduced by the amount of the credit, this substantial credit can provide a significant benefit for apartment owners - even for LIHTC properties.   If you developed a property within the timeframe outlined, I recommend contacting your accountant for advice relating to your specific situation to see if the credit may be workable for you.

Treatment of Basic Housing Allowance for purposes of Income Eligibility Rules

Treatment of Basic Housing Allowance for purposes of Income Eligibility Rules   The Tax Act Passed last night once again excludes the military Basic Allowance for Housing (BAH) (37 U.S.C sec. 403) for purposes of tax credit and tax-exempt bond eligibility for qualified buildings. A qualified building is a building located: Any county which contains a qualified military installation to which the number of members of the armed forces assigned to units based out of that installation has increased by 20% between 12/31/05 and 6/1/08; and any counties adjacent to such counties. The base must have at least 1,000 members assigned to it. Applicability: applies to income determinations made after July 30, 2008, and before January 1, 2014 if the project received a credit allocation before, on or after July 30, 2008, but before January 1, 2014. For properties with bond related allocations, the buildings need to have been placed in service before, on or after July 30, 2008 but before January 1, 2014 (bonds must have been issued prior to January 1, 2014.) Since the only thing changed in the legislation from the 2008 law is the date (January 1, 2012 was changed to January 1, 2014), only the nine areas identified in the original legislation are clearly eligible for this treatment. However, any installation that meets the definition outlined above will qualify for the exemption. The nine areas listed in the legislation are: U.S. Air Force Academy, Colorado; Fort Shafter, Hawaii; Fort Riley, KS; Annapolis Naval Station, Maryland; Fort Jackson, SC; Fort Bliss, TX; Fort Hood, TX; Dam Neck, VA; Naval Station Bremerton, WA; and Fort Drum, NY   Owners and managers with properties in the counties (or cities) in which these bases are located (or adjacent counties or cities), may exclude the BAH from the calculation of income only for tax credit and tax-exempt bond purposes. The BAH will continue to count as income for all HUD and RD programs.   Please feel free to contact me with any questions.   AJ

Ten States Increase Minimum Wage

Ten States Increase Minimum Wage Happy New Year! For workers in ten states, the new year will bring an increase in minimum wages. Nine of the ten states already had minimum wage levels higher than the federal minimum of $7.25 per hour (Missouri has now joined the group with a minimum wage of $7.35 per hour). The other states with 2013 increases are Oregon, Arizona, Colorado, Florida, Montana, Ohio, Rhode Island, Vermont and Washington. Owners and managers of properties that are required to verify applicant incomes for eligibility purposes should be aware of the minimum wage laws in all states in which they have properties and ensure that unless exempt from minimum wage, all employed applicants earn at least the higher of the federal or state minimum wage. Following is a list of the states that currently have a minimum wage higher than the federal level (this list is accurate as of January 1, 2013): StateMin Wage Alaska$7.75 Arizona$7.80 California$8.00 Colorado$7.78 Connecticut$8.25 District of Columbia$8.25 Florida$7.79 Illinois$8.25 Maine$7.50 Massachusetts$8.00 Michigan$7.40 Missouri$7.35 Montana$7.80 Nevada$8.25 (if no health ins.) New Mexico$7.50 Ohio$7.85 Oregon$8.95 Rhode Island$7.75 Arizona$8.60 Washington$9.19 Please feel free to contact me with any questions. AJ

Rural Designation at Risk for Some Areas

Some Areas May Lose Rural Designation   Approximately 55 areas around the country with MTSP income limits lower than the National Non-Metropolitan Income (NNMI) limits are in danger of losing their status as rural areas. These areas are found in the following states: Alabama, Arizona, Arkansas, Florida, Georgia, Idaho, Louisiana, Mississippi, Missouri, North Carolina, Oklahoma, Puerto Rico, South Carolina, Tennessee, and Texas.   Section 3004 of HERA allows LIHTC properties without tax-exempt bonds to use the higher of the MTSP limits or NNMI limits. Properties eligible to use the NNMI limits are held harmless from reductions in income limits from one-year to the next. IRC 142(d)(2)(E) states that the MTSP for a LIHTC property will never be less than the income limit used in the prior year. IRC 42(i)(8) states that for non-tax-exempt bond properties located in a rural area, "any income limitation measured by reference to the Area Median Gross Income (AMGI) shall be measured by reference to the greater of the AMGI or NNMI." Since AMGI is replaced for LIHTC properties in rural areas by the greater of MTSP or NNMI, use of NNMI or MTSP is held harmless.   However, if a property loses its rural designation, it will no longer be eligible to use the NNMI and will have to use the appropriate MTSP limit. The property would be able to use the highest MTSP limit in place since the project was placed in service, but this still could be less than the NNMI that had been in use.   How is a Rural Area Defined?   Technically, the definition of a rural area is based on the Housing Act of 1949. The Department of Agriculture (UDSA) list of eligible areas is usually an accurate indicator of a rural area, but since USDA has delayed implementation of 2010 census data (the census no longer will provide income information), and some legislative amendments that altered the 1949 Act have expired, care should be taken in depending on the USDA list of rural areas.   Generally, communities with less than 20,000 people and meeting certain other criteria have qualified as rural. In 1983, Congress amended the 1949 Act, "grandfathering" growing rural communities. The most recent legislation in this area allowed communities of up to 25,000 to remain eligible if they were eligible under either the 1990 or 2000 census, but this provision expired on September 30, 2012.   Based on the 2010 census data, approximately 900 areas could be deemed ineligible for rural funding and use of the NNMII income limit benefit. Only if Congress passes a bill extending the safe harbor for formerly rural communities will these 900+ communities continue to qualify as rural areas. The proposed Farm Bill in Congress will deal with this issue, but has not yet been acted upon.   The main impact of losing rural designation on LIHTC properties is that they would no longer have the option of using higher NNMI limits. This would impact existing properties in a number of localities and planned developments, where the higher NNMI income limits are rents are necessary for financial feasibility.   Owners and managers operating under the NNMI should examine whether or not they will be affected by a change in designation and plan accordingly.