Novogradac & Company Llp

Building for-sale affordable housing in economically distressed areas is a challenge that many for-profit and nonprofit developers face and a key hurdle is gaining financial equity. One method is the use of new markets tax credits to finance such housing and in today's Tax Credit Tuesday, Michael Novogradac, CPA, and Novogradac partner George Barlow, CPA, discuss the issues and opportunities related to such financing. They begin by talking about possible sources for such housing, then discuss the requirements for NMTC-financed for-sale housing, who is involved in this and where it works best. They also discuss how and when to contact a community development entity, significant tax issues and more.

The U.S. Department of Housing and Urban Development (HUD) released 2023 income limits to determine eligibility for low-income housing tax-credit (LIHTC) properties and HUD-assisted programs last week. On this week's Tax Credit Tuesday, Michael Novogradac, CPA, and Thomas Stagg, CPA, discuss the income limits and the implications for operators of LIHTC properties. They look at the big-picture takeaways, then examine the effects of the cap on properties. After that, they discuss action steps to take now, what we expect for 2024 and what resources are available to those who are interested.

Several upcoming deadlines and changes in low-income housing tax credit (LIHTC) property compliance have wide-ranging implications for developers, owners, investors, property managers and beyond. Michael Novogradac, CPA, and Stephanie Naquin, HCCP, COS, discuss four major issues on the horizon in 2023 in property compliance: the average income set-aside, the implementation of new income and asset rules, new physical inspection protocols and income limits. They cover what listeners need to know on each of these topics as well as providing insights for listeners for key dates and deadlines to keep in mind in the months ahead.

The Community Development Financial Institutions Fund incentivizes community development and economic growth through the new markets tax credit (NMTC). Small business loan funds are one way community development entities (CDEs) can invest in small businesses in amounts up to $4 million. In today's episode of Tax Credit Tuesday, Michael Novogradac, CPA, and Greg Clements, CPA, discuss the pros and cons of small business loan funds for CDEs, lenders, borrowers and more. They discuss the reasons a CDE might use a loan fund rather than a series of loans as well as strategies for implementing the funds. They also discuss how a CDE might structure loan funds with the ability to make them into evergreen funds.

The Inflation Reduction Act of 2022 allows for the transferability of certain renewable energy tax credits, including the production tax credit (PTC) and the investment tax credit (ITC). As the renewable energy community awaits further guidance from the Internal Revenue Service, Michael Novogradac, CPA, and Josh Morris, CPA, discuss in this week's podcast the basics of transferability, including how it compares to more traditional renewable energy partnership structures. They discuss possible issues around timing and recapture, as well as anticipated guidance about transferability of renewable energy tax credits.

Federal law generally requires low-income housing tax credit (LIHTC) properties to remain rent restricted and only available to low-income tenants for a minimum of 30 years. This period of required affordability beyond Year 15 is called the extended-use period. Some states extend the affordability period even longer. As more LIHTC properties reach or approach Year 30, Michael Novogradac, CPA, and Novogradac partner Chris Key, CPA, discuss four common options for LIHTC owners at Year 30, including the benefits, considerations and challenges of each.

A growing number of real estate developers are choosing U.S. Department of Housing and Urban Development (HUD)-insured loans: Section 221(d)(4) and Section 223(f). Both programs allow real estate developers to borrow more money at lower interest rates and longer amortization terms, compared to most conventional loans. Michael Novogradac, CPA, and Novogradac partner Tiffany French, CPA, compare and contrast the benefits and requirements of Section 221(d)(4) and Section 223(f) loans with conventional loans.

The Financial Accounting Standards Board released Accounting Standards Update 2023-02, which expanded the ability to use the proportional amortization method of accounting to all tax credits. Michael Novogradac, CPA, and Novogradac partner Brad Elphick, CPA, discuss what the announcement means for multiple types of tax credit investments, including federal low-income housing tax credits, new markets tax credits, historic tax rehabilitation credits and renewable energy tax credits such as the production tax credit and investment tax credit. They discuss how the impacts of proportional amortization can be further expanded and how additional action could spur deeper change.

The Financial Accounting Standards Board (FASB) published Accounting Standards Update (ASU) 2023-02 on March 29, which expands the proportional amortization method to account for investments in all tax credit structures. That accounting method was previously allowed only for low-income housing tax credit (LIHTC) investments, but now is available, by election, to all community development tax credit investment reporting that meet five conditions. Michael Novogradac, CPA, and Novogradac partner Nat Eng, CPA, discuss the implications of ASU 2023-02 for renewable energy investment, including key aspects of the guidance, the hurdles of applying proportional amortization and ways to overcome those hurdles.

Due to uncertainty about U.S. Department of Housing and Urban Development funding levels each year, a growing number of public housing authorities (PHAs) are exploring asset repositioning options for their public housing stock. Michael Novogradac, CPA, and Novogradac partner Rich Larsen, CPA, discuss five common asset repositioning options, including the Rental Assistance Demonstration (RAD) program, RAD with Section 18 blends, streamlined voluntary conversions, homeownership and maintaining the status quo. Learn about the benefits and challenges of each option.

Developers of historic buildings know that preserving the architectural integrity and historic character of a property adds significant additional development costs, which in turn, creates or expands a financing gap. Michael Novogradac, CPA, and Novogradac partner Warren Sebra, CPA, discuss additional financing sources for historic preservation, beyond the federal historic tax credit. They discuss the low-income housing tax credit, state historic tax credits, the new markets tax credit, the solar tax credit and Section 45L credit, and opportunity zones.

Provisions in last summer's Inflation Reduction Act (IRA) created "adders" to the renewable energy investment tax credit when solar power is installed on affordable housing properties. In this week's Tax Credit Tuesday podcast, Michael Novogradac, CPA, and Novogradac partner Dirk Wallace, CPA, discuss the provisions'both for affordable housing and for other low-income communities. They take a brief detour to discuss the Internal Revenue Code Section 45L credit expansion that was part of the IRA, then talk about Internal Revenue Service guidance concerning the allocation plan for 1.8 gigawatts of solar power, including how many properties may receive allocation, the timeline for the applications and what developers should be doing now to get ready. They also discuss issues for investors and syndicators of low-income housing tax credits and forthcoming guidance, including how benefits to tenants will be measured.

Housing starts'including multifamily'have outpaced household formation over the past three years, although the longer-term trend is the reverse: That households are forming faster than homes are being created over a five- and 10-year period. In this week's Tax Credit Tuesday podcast, Michael Novogradac, CPA, discusses the short- and long-term effects of housing trends with Kelly Gorman, a Novogradac partner in the company's valuation practice. They discuss whether market-rate apartment rents are dropping anywhere close to low-income housing tax credit (LIHTC) properties, what types of housing or geographical areas would be first to feel the effects of such a change and how a recession could affect affordable housing'taking a look back to the Great Recession and the pandemic-influenced recession for context. They include what factors affordable housing developers and owners should examine to see whether the supply-and-demand balance is changing in their area.

Standalone energy storage became eligible for the renewable energy investment tax credit (ITC) through a provision in the Inflation Reduction Act, which was signed into law last summer. In this week's Tax Credit Tuesday podcast, Michael Novogradac, CPA, discusses the implications and opportunities for that with Rob Bryant, CPA, a Novogradac partner. They examine the need for storage, how storage's eligibility for the ITC changed the market and how to determine whether standalone storage makes sense for you. They also examine the amount of tax credit equity that might come into a standalone storage, how it could play out on a smaller scale and what issues developers should address.

As the new markets tax credit (NMTC) community concludes a busy period between the award of one round and the applications for another, some community development entities (CDEs) will turn their sights toward NMTC compliance reporting. In this week's podcast, Michael Novogradac, CPA, and Austin Power, CPA, provide an overview of NMTC compliance reporting, why it's valuable to the Community Development Financial Institutions (CDFI) Fund as well as what can happen to CDEs that fall out of compliance. Later, they discuss Power's four pieces of advice for CDEs to set themselves up for compliance reporting success, including being mindful of timeliness and taking advantage of interim certification.

Qualified opportunity funds being tracked by Novogradac reported nearly $10 billion in equity investment during 2022 and we recently began another session of Congress with a possibility of legislation to extend and enhance the opportunity zones (OZ) incentive. In this week's podcast, Michael Novogradac, CPA, and John Sciarretti, CPA, discuss the state of incentive and the chances for changes either by legislation or regulation. They also discuss the role the Novogradac Opportunity Zones Working Group is playing and what might be in an "Opportunity Zones 2.0" bill. They then examine highlights of the recent Novogradac QOF equity-raising report.

The fiscal year (FY) 2023 round of the Capital Magnet Fund is now open and the deadline to apply is March 21. The Community Development Financial Institutions (CDFI) Fund plans to award up to $320.6 million to CDFIs and qualified nonprofit housing organizations through the FY 2023 round. Michael Novogradac, CPA, and Novogradac partners Amanda Read, CPA, and Brent Parker, CPA, discuss Capital Magnet Fund basics, an overview of what is new with the FY 2023 application, tips on getting a competitive edge on applications, key deadlines and more.

There are two overarching ways to structure a historic tax credit transaction: the direct investment structure and the pass-through lease structure. How do the structures differ and how can you choose the right structure for your project? Michael Novogradac, CPA, and Novogradac partner John DeJovine, CPA, discuss the pros and cons of each structure for developers and investors, as well as other considerations when choosing a structure.

The affordable housing industry continues to work through the challenges of the COVID-19 pandemic, including for some public housing authorities (PHAs) a return to the office and an opportunity to re-evaluate internal controls. In this week's podcast, Michael Novogradac, CPA, and Rich Larsen, CPA, discuss four ways PHAs can protect against fraud, with special attention on rent collections, building materials, physical assets and cyber fraud.

Form 8609 is the IRS document that credit allocating agencies give to property owners as evidence that the owner is eligible to claim low-income housing tax credits (LIHTCs). Developers should understand how to complete Form 8609 and its various elections because an improperly completed form can result in the loss of credits on a building-by-building basis. Michael Novogradac, CPA, and Craig Staswick, CPA, provide an overview of Form 8609 and discuss the nuances of particular questions to help developers avoid potentially costly mistakes. As part of the "So You Want to be a LIHTC Developer" series, this episode is a must-listen for all new and experienced LIHTC developers.