News

Foreign Students in LIHTC Projects

Managers of Low-Income Housing Tax Credit Projects (LIHTC) are sometimes faced with having to determine the eligibility of foreign students for occupancy at a Section 42 property. This is actually easier in most cases than determining the eligibility of U. S. citizens with regard to student status. There are only three types of student visas for foreign students in the United States: F1 Visa: An F1 visa is issued to students who are attending an academic program or English language program. F1 visas are by far the most common form of international student visa in the U.S. F1 students must maintain the minimum course load for full-time student status. F1 status allows for part-time, on-campus employment (fewer than 20-hours per week). Also, students can work on "optional practical training (OPT)" for up to one year after completion of their academic program, meaning it is possible to have a non-student on an F1 visa; J1 Visa: This visa is issued to students who need to obtain practical training that is not available in their home country to complete their academic program. J1 student status allows for similar employment as the F1 visa, with similar restrictions, as long as the exchange visitor program sponsor gives permission. It is possible for an M1 visa holder to be a part-time student, so this may need to be verified with the school; and M1 Visa: An M1 visa is issued to a student who is going to attend a non-academic or vocational school. M1 visa holders for technical and vocational programs are not permitted to work during the course of their studies. M1 students must provide evidence that sufficient funds are immediately available to pay all tuition and living costs for the entire period of the intended stay.   Unless a foreign student holds a J1 visa, they will always be considered a full-time student. However, depending on the circumstances, an M1 student could be considered to be in a job-training program (if funded by a government agency) so additional verification of the circumstances of their student status may be required.   If a foreign student lives in a LIHTC unit in which all household members are full-time students, unless the household meets one of the five Section 42 delineated exceptions, the household will not qualify as a low-income household for Section 42 purposes. Knowing the requirements relating to foreign students will assist LIHTC managers in determining household eligibility.        

Revisions to Senate Tax Bill - November 14, 2017

It is expected that the Senate will vote on its version of tax reform after Thanksgiving. The version to be voted on will include several changes to the Low-Income Housing Tax Credit (LIHTC) program and, unlike the House bill, retains private activity bonds (i.e., the Tax-Exempt Bond Program). None of the proposed changes to the LIHTC program will increase the cost of the plan. Those changes are as follows: Clarify that state Housing Credit Agencies have the authority to determine what constitutes community revitalization, within broad parameters, for purposes of determining whether properties are eligible for a basis boost due to being located in a Qualified Census Tract and contributing to a "concerted community revitalization plan;" Prohibit local approval and contribution requirements in order to prevent local opposition ("NIMBY") from preventing housing credit developments; Require that states add a selection criteria to their Qualified Allocation Plans (QAPs) for housing that serves the needs of Native Americans; and Rename the program the "Affordable Housing Tax Credit."   Many other changes that were included in the Cantwell-Hatch Affordable Housing Credit Improvement Act, which was introduced earlier this year, cost money. Due to severe budgetary pressures on the tax plan, none of those proposed changes are included in the current bill.   As noted, a vote on the Senate bill is expected in the week after Thanksgiving. This will be followed by a House/Senate Conference Committee, which must agree on a single bill to present for the President s signature. The stated goal is to have this done before Christmas.  

2018 Annual Adjustment Factors (AAFs) Released by HUD

On November 8, 2017, HUD published the Section 8 Housing Assistance Program - Annual Adjustment Factors (AAFs), fiscal year 2018 in the Federal Register. These factors are used for adjusting or establishing Section 8 rents under various Section 8 programs. AAFs are distinct from, and do not apply to the same properties as, Operating Cost Adjustment Factors (OCAFs). OCAFs are annual factors used to adjust rents for project-based Section 8 rental assistance contracts renewed under MAHRA. A Notice on the new OCAFs was published in November 2, 2017. The AAFs are effective on the anniversary of the assistance contract for the individual properties.   AAFs established by this Notice are used to adjust contract rents for units assisted under three categories of Section 8 programs:   Category 1: Section 8 New Construction, Substantial Rehab, and Moderate Rehab programs;   Category 2: Section 8 Loan Management (LM) and Property Disposition (PD) programs; and   Category 3: Section 8 Project-Based Certificate (PBC) Program.   AAFs are not used in the following cases:   Renewal Rents: AAFs are not used to determine renewal rents after expiration of the original Section 8 HAP Contract; Budget Based Rents: AAFs are not used for budget-based rent adjustments. For projects receiving Section 8 subsidies under the LM program and for projects receiving Section 8 subsidies under the PD program, contract rents are adjusted, at HUD s option, either by applying the AAFs or by budget-based adjustments. Budget-based adjustments are used for most Section 8/202 projects; and Housing Choice Voucher Program.   Technical details and requirements for using AAFs are described in HUD Notices H 2002-10 and PIH 97-57.   How to Find the AAF   AAF tables are posted on the HUD User Web Site at www.huduser.gov/portal/datasets/aaf.html.    

Comparison of House and Senate Tax Bills

On November 9, the Senate Finance Committee released its tax plan, following the House Ways and Means Committee plan last week. Since I sent a memo on the House plan last week, I will only note the differences between the two plans in this memo.   The House Plan has four tax brackets (12%, 25%, 35%, and 39.6%). The Senate proposal has seven - all of which are lower than the current rates (10%, 12%, 22.5%, 25%, 32.5%, 35%, and 38.5%);   The House plan increases the child tax credit from $1,000 to $1,600 and the Senate bill proposes $1,650;   Both plans reduce the corporate tax rate to 20%, but the House bill makes the reduction in 2018 while the Senate delays the cut until 2019;   The House doubles the current exemption on the estate tax to apply only to estates worth more than $10 million in 2018 and phases the cut out over six years. The Senate doubles the exemption next year and but keeps the tax in place;   The House plan cuts deductions for major medical expenses by allowing a deduction only when expenses exceed 10% of income; the Senate keeps the deduction in place;   The House bill only permits a mortgage interest deduction on the first $500,000 borrowed for a primary home and allows no deduction for second homes or home equity loans; the Senate keeps the current limit of $1 million but ends the deduction for home equity loans;   House allows deduction of property taxes up to $10,000 but the Senate eliminates all state and local tax deductions;   The House bill eliminates a deduction for interest on student loans but the Senate bill allows the deduction; and   The House bill eliminates the deduction for the cost of class materials purchased by teachers from their own funds but the Senate leaves this deduction in place.   Also, critical to affordable housing, while the House Bill proposes to eliminate tax-exempt bonds, the Senate leaves the program intact.   The House and Senate must both complete "mark up" of the current plans and each must vote on a full bill. Since the two bills will have significant differences, a conference will be required between the two chambers to come up with a final bill, at which point it will go to the President for signature.   While not a sure thing, the plan is to have a bill for the President before Christmas.

Tax Cuts and Jobs Act - H.R 1

On November 2, 2017, the House Ways & Means Committee released H.R.1, "The Tax Cuts & Jobs Act." The 429-page bill includes five sections: Tax Reform for Individuals; Repeal of the Alternative Minimum Tax (AMT); Business Tax Reform; Taxation of Foreign Income; and Exempt Organizations   While all five sections are important and have far-reaching impact, this memo deals primarily with the first three, since these are the most likely to impact our clients.   This proposed legislation is simply the beginning of a long process. It is certain that when (if) a tax bill is signed into law (this year or sometime in the future), it will differ from what is currently included in H.R. 1.   Major Elements of the Tax Cuts & Jobs Act   The Mortgage Interest Deduction is capped at $500,000 of debt for future purchases of principal homes. This would not apply to people who currently own first and second homes. There would be four tax brackets under the new law: Income of $24,000 or less: no tax; Income of $24,001 - $90,000: 12%; Income of $90,001 - 260,000: 25%; Income of 260,001 - $1,000,000: 35%; and Income of more than $1,000,000: 39.6% The standard deduction would be increased to $24,400 for married couples and $12,200 for individuals. There would be no change from current law for the treatment of 401k plans. There would be a significant reduction in medical expense deductions (as noted below). Deductions for property tax would be capped at $10,000, with no deduction for other state or local taxes. The bill repeals the Alternative Minimum Tax (AMT). This will result in huge savings for persons with very high incomes. Only 60% of charitable contributions would be deductible, but non-deducted contributions could be carried forward for five years. There would be no deduction for contributions to medical savings accounts and amounts contributed by the employer will be taxable to the employee. Historic Tax-Credits would be repealed. The New Market Tax Credit would be repealed. Private Activity Bonds (Tax-exempt bonds) would be terminated.   As currently proposed, the tax changes would result in a significant reduction in the number of affordable housing units developed over the next ten years (some estimates are as high as one million units). The primary drivers of this reduction are (1) the 20% corporate tax rate; and (2) elimination of tax-exempt bonds. The repeal of Historic Tax Credits and to a lesser degree the New Market Tax Credits will also impact the number of affordable housing units.   There are less publicized areas of the bill that will impact a fairly substantial number of people. These are worth mentioning:   Adoption tax credits of up to $13,750 per child will end; For divorce decrees issued after 2017, alimony will no longer be deductible for the person paying, but will not be counted in the income of the recipient; Teachers will no longer be able to deduct the cost of school supplies they purchase with their own money; Under current law, losses from theft or natural disasters that exceed 10% of adjusted gross income are deductible. This bill repeals that deduction except for disasters given special treatment by a prior act of Congress, such as losses from Harvey, Irma, and Maria (which was sponsored by Rep, Kevin Brady (R-Texas), who just happens to be the chairman of the House Ways and Means Committee, and is the primary author of the bill); Cash awards from employers to employees for employee achievement awards will no longer be deductible; Under current law, major medical costs exceeding 7.5% of adjusted gross income are deductible; this is repealed under the bill; The cost of moving expenses for a new job more than 50 miles from a current home is no longer deductible; Companies will no longer be able to claim a credit of 25% of the expenses for employee childcare; A credit for 50% of the cost of clinical testing of drugs for rare diseases and conditions would be repealed; Interest on the bonds issued by State and local governments for sports stadiums will no longer be tax-free; and Tax preparation fees will no longer be deductible.   The bill makes no mention of the Low-Income Housing Tax Credit (LIHTC). This is good, in that it leaves the program as it currently exists untouched. But, as noted above, the lowering of the corporate tax rate will have a market-driven impact on LIHTC housing, and elimination of the tax-exempt bond program would be devastating. Anyone who believes that the development of affordable rental housing is important should contact their elected representatives and make it clear that the elimination of Tax-Exempt Bonds and Historic Tax Credits will have an unacceptable impact on the availability of affordable housing.

2018 Operating Cost Adjustment Factors (OCAFs) and Utility Allowance Factors Released by HUD

On November 2, 2017, HUD published the Operating Cost Adjustment Factors (OCAF) in the Federal Register. These factors are used for adjusting or establishing Section 8 rents under the Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRA), as amended, for projects assisted with Section 8 Housing Assistance Payments. The factors are effective February 11, 2018 and can be found at www.gpo.gov/fdsys/pkg/FR-2017-11-02/pdf/2017-23901.pdf.   OCAFs are distinct from, and do not apply to the same properties as Annual Adjustment Factors (AAFs). AAFs are used to adjust contract rents for units assisted in certain Section 8 housing assistance payment programs during the initial (i.e., pre-renewal) term of the HAP contract and for all units in the Project-Based Certificate Program.   The OCAFs are published for each state and range from a low of 0.9 for Hawaii and the Pacific Islands to a high of 2.9 for Alaska.   Utility Allowance Factors for 2018, which may be used to adjust baseline utility allowances prepared in accordance with Housing Notice 2015-04, are also now available on HUDUser at www.huduser.gov/portal/datasets/muaf.html.    

Financing for Multifamily Energy Conservation Improvements - the PACE Program

A number of states and the District of Columbia have enacted legislation authorizing Property Assessed Clean Energy (PACE) programs to finance the installation of energy conservation improvements on multifamily housing projects. HUD has established standards for determining whether such programs are compatible with FHA and subsidized housing programs and guidance for obtaining HUD approval for participation in PACE programs.   PACE programs typically allow owners to finance the up-front costs of the installation of energy conservation improvements by entering into a contract with the participating locality providing that the costs will be repaid through special property assessments, generally through semiannual payments over 20-years. Under the HUD guidance, a PACE program will be approved only if the special assessment will be assessed by a state, county, or municipality under state law and sent with tax bills; payments will be collected with tax bills; at any given time, the owner s only obligation will be the payment or payments then or past due, with no acceleration of the entire assessment amount; and in the event of a default on payment of the PACE assessment, the mortgagee will receive timely notice and a reasonable opportunity to cure the nonpayment.   Once a local PACE program has received notice that it satisfies HUD s procedures, HUD will consider requests from project owners to participate in the program.   States with active residential PACE programs are Florida, Missouri, and California. There are also a number of states with enabling legislation but no actively operating PACE programs. These are: Maine Rhode Island New York Vermont New Jersey Maryland Ohio Michigan Wisconsin Minnesota Illinois Georgia Arkansas Oklahoma Nebraska Colorado New Mexico Nevada Oregon   Owners of HUD-assisted projects interested in possible participation in a PACE program should obtain and review a copy of HUD Notice H 2017-01 dated January 11, 2017.   Owners of non-HUD-assisted properties are also eligible to participate in local PACE programs, including Low-Income Housing Tax Credit properties. Owners of properties located in the states noted above that are interested in possible PACE participation should contact their locality for details.    

Rural Housing Service Final Rule on Financial Reporting Requirements

On October 25, 2017, the Rural Housing Service (RHS) published a Final Rule in the Federal Register, "Multi-Family Housing Program Requirements to Reduce Financial Reporting Requirements." This rule is effective on November 24, 2017.   The purpose of this rule is to align RHS requirements with those of the Department of Housing and Urban Development (HUD) with regard to the financial reporting requirements of federally assisted housing projects. The rule will utilize a "risk-based threshold" reporting which is intended to reduce the burden on owners of smaller properties.   Programs affected by this rule are the Farm Labor Housing Loans and Grants (Section 514 and 516) and the Rural Rental Housing Program (Section 515).   Background   RHS believes that high-risk properties should receive more stringent evaluation of financial performance and that such evaluation can be accomplished in a more cost-effective manner than the current requirements. This new rule will also meet HUD requirements so that RHS properties with HUD Section 8 will now have uniform financial reporting requirements.   High-risk properties are those with combined federal financial assistance of $750,000 or more for non-profit entities and $500,000 or more for for-profit entities. The new rule also requires that all owners of RHS properties use the accrual method of accounting, regardless of the size of the projects, and must describe their accounting, bookkeeping, budget preparation, and financial reporting procedures in the property management plan.   Annual Financial Reports   For-profit borrowers that receive $500,000 or more in combined Federal financial assistance must include an independent auditor s report that complies with generally accepted accounting principles (GAAP).   Non-profit borrowers that receive $750,000 or more in combined Federal financial assistance must meet Federal Audit requirements relating to non-profit reporting.   Non-profit borrowers that receive less than $750,000 and for-profit entities that receive less than $500,000 in combined Federal financial assistance will submit annual owner certified prescribed forms on the accrual method of accounting. Borrowers may (but are not required to) use a CPA to prepare this compilation report of the prescribed forms. The required submission will include: A statement that there has been no change in project ownership other than those approved by the Agency and identified in the certification; Documentation that real estate taxes are paid in accordance with state and/or local requirements and are current; and Documentation that replacement reserve accounts have been used for only authorized purposes.   While this rule is effective on November 24, 2017, it will essentially be effective for borrowers with fiscal years beginning January 1, 2018 and thereafter.