How LIHTC Properties Can Help with Households Displaced by Hurricane Harvey
Hurricane Harvey is clearly one of the worst disasters in many years. Owners of low-income housing tax credit (LIHTC) properties may be able to help with a crucial need: providing apartments for displaced households. The opportunity to do so likely will be national: after Hurricane Katrina, New Orleans residents relocated all over the country.
Revenue Procedure 2014-49 (Rev. Proc. 2014-49) covers the rules for LIHTC housing in response to presidentially-declared disasters. (Similar guidance for tax-exempt bond properties was published in Rev. Proc. 2014-50.) Many of the provisions address aspects determined later on, such as carryover allocations and recapture relief. Those provisions will be addressed in future discussions in this space.
The focus of this post is to explain what Rev. Proc. 2014-49 says about helping individuals and families. This discussion is not a substitute for carefully reading the document itself (especially Sections 12, 13, and 14).
1. First, does the property have current or upcoming vacancies? If not then there isn’t much owners can do. Rev. Proc. 2014-49 precludes evicting existing tenants to provide emergency housing. (The protection actually applies only to those below the LIHTC income limit, but owners should be aware of local and state landlord/tenant restrictions.)
2. If so, is it possible to qualify the displaced household as LIHTC-eligible? Doing so is better for all involved. Rev. Proc. 2014-49 comes into consideration when owners are not able to qualify applicants. Reasons for not being able to qualify applicants include being over-income or documentation shortcomings (e.g., paperwork being unavailable or the households not wanting to wait).
3. Has the allocating agency provided written approval to house displaced individuals and specified the duration allowed? Some agencies may issue written approval for all properties in their jurisdiction, but if not LIHTC property owners must ask for approval. Rev. Proc. 2014-49 defines a temporary housing period (THP) as being up to 12 months from the end of the disaster declaration month. Presumably agencies will use this maximum, but technically could impose an earlier deadline. Property owners should keep a record of the approval and time period.
4. Once the allocating agency has issued the approval, displaced households can move in. Each must first sign a statement (under penalty perjury) with the following information:
- address of the principal residence at the time of the disaster;
- social security number(s);
- that the household was displaced as a result of the disaster; and
- the principal residence was located in a jurisdiction both covered by the presidential declaration and eligible for FEMA Individual Assistance.
The last of these may be obvious, but as with all LIHTC matters it’s good to comply with the letter of the rule. The Texas Department of Housing and Community Affairs posted a sample certification form to its website.
When documentation was unavailable at move-in, LIHTC property owners should not wait unit the end of the THP to start qualifying tenants; rather, they should do so as quickly as possible so as to set expectations about whether the displaced tenants will be able to remain in the property. LIHTC property owners also should work closely with legal counsel and the allocating agency to make certain lease agreements address options in relation to over income tenants.
5. The next question is whether the property is in its first year. If so, the unit is treated as low-income for purposes of determining the qualified basis and meeting the minimum set-aside (e.g., 40 percent of the units at 60 percent of area median income). If the move-in takes place after the first year, “the unit retains the status it had immediately before” (i.e., LIHTC eligible, market-rate, or never occupied).
6. Looking ahead, what happens once the THP ends? Property owners will need to provide the allocating agency with a list of the displaced individuals and their dates of occupancy. More importantly, Rev. Proc. 2014-49 calls for reexamining eligibility as if the households were new. Those who are not LIHTC qualified at that time will result in the units being considered market-rate. In order to avoid the unlikely, worst-case scenario of not meeting the minimum set-aside, there is a 60-day correction period.
7. Rev. Proc. 2014-49 has several other provisions; a crucial one addresses consequences:
“The emergency housing of Displaced Individuals in low-income units during the Temporary Housing Period... does not cause the building to suffer a reduction in qualified basis (which would cause the recapture of [LIHTCs]).”
How this language fits with units being not LIHTC qualified once the THP ends is unclear. Other additional provisions include:
- the maximum housing expense must comply with the applicable LIHTC limit;
- occupancy by displaced households satisfies the non-transient use requirement; and
- during the THP, the next available unit rule applies based solely on occupancy by those not displaced.
LIHTC property owners and allocating agencies have a unique role to play in helping those affected by Hurricane Harvey. Novogradac professionals are available to answer related questions.
Congress is expected to consider a disaster supplemental appropriation when it returns after Labor Day, possibly including a tax title with LIHTC provisions. The LIHTC community is hopeful that title would apply lessons learned from Hurricane Katrina on the value of the LIHTC and other community development tax credits in responding to and recovering from natural disasters.