LIHTC Working Group Requests Important Industry Guidance
The Low-Income Housing Tax Credit (LIHTC) Working Group has been active in 2022 working with industry leaders, the U.S. Department of the Treasury and the Internal Revenue Service (IRS) to provide comments on guidance needed by LIHTC participants. This year saw the LIHTC Working Group focus on several important regulatory and legislative issues, including additional COVID-19-related regulatory relief, revised guidelines on the usage of State and Local Fiscal Recovery Funds (SLFRF), Average Income Test (AIT) final regulations and responses to request for comments on various provisions in the Inflation Reduction Act (IRA), each of which are detailed below.
COVID-19 LIHTC Relief Deadline Extensions
As a result of previous working group efforts, in January 2021, the IRS released Notice 2021-12, which provided initial LIHTC deadline extensions due to the COVID-19 pandemic. However, a majority of these deadlines were only extended through Sept. 30, 2021. The LIHTC Working Group quickly realized that additional relief would be necessary. The LIHTC Working Group submitted a letter, along with other LIHTC industry groups, requesting further extensions. The IRS responded by issuing Notices 2022-05 and 2022-52. These notices provided key extensions regarding the 10% test for carryover allocations, the 24-month minimum rehabilitation expenditure period, placed-in-service deadlines, casualty loss restoration timelines, extensions to satisfy occupancy obligations, compliance correction periods and temporary physical unit inspection waivers.
State and Local Fiscal Recovery Funds
The American Rescue Plan Act contained a provision to provide $350 billion in SLFRF for many uses, which included the development, repair and operation of affordable housing. The SLFRF final rule issued by Treasury created unnecessary hurdles when providing long-term affordable housing loans. In March, more than 80 organizations, including Novogradac, signed a letter asking Congress to amend regulations to make it easier for long-term loans for LIHTC properties. As a result, Treasury issued revised frequently asked questions that increased the flexibility to use SLFRF to fully finance long-term affordable housing loans and expanded the eligible affordable housing uses to maximize the availability of SLFRF for affordable housing. Treasury and the U.S. Department of Housing and Urban Development also published a how-to guide to help governments combine American Rescue Plan funding with that of other sources of federal funding.
Average Income Test Final Regulations
On Oct. 7, the wait for final AIT regulations was finally over. Almost two years after proposed guidance was published by Treasury, the final regulations related to AIT were released. Throughout the two-year period, the LIHTC Working Group provided comments and testified before the IRS and Treasury to help provide changes and clarity needed by the industry. The final regulations provided guidance on meeting the minimum set-aside, changing a unit designation and the effect of unit noncompliance. The biggest change from the proposed regulations was the elimination of the “cliff effect” as it related to meeting the minimum set-aside. It makes it clear that for any unit to be considered low income, it must be part of a project whose total unit designations do not average more than 60%.
Inflation Reduction Act
The IRA passed in August provides $369 billion in clean and renewable energy provisions. The three key tax incentives that include critical housing-oriented provisions are the IRC Section 48 renewable energy investment tax credit (ITC), the IRC Section 45L new energy-efficient home credit and the IRC Section 179D commercial buildings energy-efficient tax deduction. Treasury released six notices seeking public comment on climate and clean energy tax incentives included in the IRA, due by Nov. 4, with subsequent guidance expected to be released in early 2023. The LIHTC Working Group submitted comments related to the IRA provisions that can be combined with the LIHTC. One of the recommendations surrounded the elimination of the eligible basis reduction associated with combining ITC and LIHTC. However, it is unclear the depreciable basis reduction was also eliminated for IRC Section 42 properties. The LIHTC Working Group also provided comments on the allocation of the 20% bonus credit for covered housing programs, which includes the LIHTC.
The LIHTC Working Group will remain busy in the final weeks of 2022 with the preparation of additional comment letters, promoting the expansion of the LIHTC and possibly additional COVID-19-related relief. Each year, the LIHTC Working Group provides recommendations to the IRS on action items to be included in the annual Priority Guidance Plans. With guidance having already been provided on the AIT, the LIHTC Working Group will likely focus on a request for guidance on the revised edition of IRS Form 8609 and the LIHTC/ITC provisions in the IRA.
With all events and actions impacting the affordable housing arena, if you are an investor, developer, syndicator or other LIHTC professional, you will want to consider joining the LIHTC Working Group to get the inside track on issues affecting the LIHTC, have your technical program issues resolved and add your issues to the group’s agenda. For more information about becoming a member, please email [email protected].
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