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Novogradac Journal of Tax Credits Volume 1 Issue 4

The April 2010 issue of the Novogradac Journal of Tax Credits.

Journal cover April 2010

Articles

Jennifer Hill

Thursday, April 1, 2010

A widely leaked draft Senate bill would overhaul the secondary mortgage market and scale back commitments to affordable mortgages. Offices of the senators working on the draft, Bob Corker, R-Tenn., and Mark Warner, D-Va., say the draft is not final and neither senator has formally committed to it.The draft bill is the newest attempt at housing finance reform, the last big unfinished business of financial system reform in the aftermath of the Great Recession. After the Federal Housing Finance Agency (FHFA) took Fannie Mae and Freddie Mac–the so-called government sponsored enterprises, or GSEs–into conservatorship in 2008, the Treasury Department invested $187 billion to keep them operating and to support the housing market. The GSEs since returned to financial health and paid $271 billion in dividends to Treasury, but they remain in conservatorship. Under the current system, Fannie Mae and Freddie Mac are required to meet certain affordable housing goals; have additional duties to serve rural communities, housing preservation and manufactured housing; and contribute ($339 million in 2017) to the Housing Trust Fund and Capital Magnet Fund. In 2018-2020, the goals require that at least 24 percent of the single-family home purchase mortgages the GSEs acquire should serve low-income borrowers; at least 6 percent should serve very low-income borrowers; at least 14 percent should be located in low-income areas; and 21 percent of refinance loans should serve low-income borrowers.

Michael J. Novogradac

Thursday, April 1, 2010

In the wake of the tax reform legislation, H.R. 1, enacted Dec. 22, 2017, and the new partnership audit regime required by the Bipartisan Budget Act of 2015 with respect to tax years beginning Jan. 1, 2018, syndicators and developers need to determine whether partnership agreements should be amended before the filing of the partnership’s 2018 federal income tax return. Deal specifics may dictate whether an amendment is required, so parties should consider each deal individually to determine the best approach. If an amendment is necessary, negotiation will be required to execute a mutually satisfactory agreement. Business Interest DeductionsRevised Internal Revenue Code (IRC) Section 163(j) limits a taxpayer’s business interest deductions for any taxable year to the sum of such year’s (A) business interest income, (B) 30 percent of the adjusted taxable income, plus (C) the floor plan financing interest. Depreciation deductions are excluded from the calculation of taxable income until Jan. 1, 2022. Accordingly, after 2022, the limitation becomes more restrictive. The small-business exception to the limitation does not apply to tax shelters (which include any partnership if more than 35 percent of the losses of the partnership in a taxable year are allocable to limited partners). Thankfully, an exception to the limitation exists for electing “real property trade or businesses.” Businesses involved in the development, redevelopment, construction, reconstruction, acquisition,

Jennifer Hill

Thursday, April 1, 2010

The election of the gross rent floor is a commonly misunderstood concept because there really is no election required. The Internal Revenue Service (IRS) automatically provides two rent floors, one at carryover (reservation date for bond developments) under Revenue Procedure 94-57 and one at placed in service under Internal Revenue Code (IRC) Section 42 and 142. Owners do not need to affirmatively elect either one of these dates.However, if the state agency asks owners to make an election under Rev. Proc. 94-57, owners should elect the carryover rent floor instead of the placed-in-service rent floor, because the placed-in-service rent floor date is already automatic under IRC 42 and 142.The purpose of the rent floor at carryover date is so that the rents remain fixed that were used for financial feasibility and underwriting by the state agency and the owner near the time the development applied for and received tax credits. To understand the role of the gross rent floor, it is important to understand the history and how it conforms to current program guidance. The IRS released Revenue Procedure 94-57 in 1994 to set a rent floor tied into the carryover date so that developments weren’t infeasible based on rents lower than those used by the state agency at time of carryover. It is important to remember that Rev. Proc. 94-57 is specific to the gross rent floor and does not address how to treat fluctuations in income limits for the purposes of determining if a low-income tenant

Jennifer Dockery

Thursday, April 1, 2010

Monogram Foods Solutions, a manufacturer of meat products, snacks and appetizers, is a stabilizing force in Martinsville, Va.The company is one of Martinsville’s leading employers, thanks to an always-growing production facility. Depending on the season, the production facility employs between 550 and 650 people. “Two years ago, we added on to our production facility,” said Ches Jackson, president of supply chain at Monogram. Because of the expansion, Monogram needed a better way to dispose of the wastewater produced by its 175,000-square-foot facility. In June 2017, Monogram completed construction of a clean energy plant adjacent to the production facility that uses an anaerobic digester (AD) to treat its wastewater. Jeff Johnson, chief operating strategy officer at Monogram, said the treatment facility was necessary to stay in compliance with the city’s water treatment system. “Monogram has been very successful in growing in Martinsville,” said Jennifer Westerbeck, vice president, new markets tax credit (NMTC) team at U.S. Bank, which provided NMTC equity to finance the development of the clean energy plant. “They were outgrowing the water system of this rural community.” Financing for the clean energy plant also included renewable energy investment tax credit (ITC) equity. [scald=167216:embedded_image_100 {"link":"https:\/\/www.novoco.com\/atom\/167216","linkTarget":"_blank"}]Image: Courtesy of Monogram Foods SolutionsIn June 2017, Monogram Foods Solutions completed

John M. Tess

Thursday, April 1, 2010

A 125-year-old institution in St. Paul, Minn., almost went extinct. That is until historic tax credits (HTCs) and new markets tax credits (NMTCs) helped to bring life back to the Minnesota Museum of American Art (the M). “In 2009 we had a brink-of-our-death type of moment,” said Jennifer Hensley, director of operations at the M. “The museum was nothing but a board of directors with no staff or location. At that point, we hired our current executive director (Kristin Makholm),” who was brought in to decide whether to end the museum or inject new life into it. Not only did Makholm keep the museum up and running, but she gave the M its first permanent home in recent history. “We haven’t had a permanent home for many years,” said Hensley. “We had been renting different spots, mostly small galleries that were not large enough to show off our collection.” Founded in 1894 as the St. Paul School of Fine Arts, the M was incorporated in 1927, when it began collecting artwork for instructional purposes. It has been an arts and education staple in the community since. “There is no other art museum in St. Paul,” said Hensley. [scald=167241:embedded_image_100 {"link":"https:\/\/www.novoco.com\/atom\/167241","linkTarget":"_blank"}]Image: Courtesy of VJAAThe M Museum’s new home will feature the Center for Creativity, a 3,000-square-foot space for art classes, community education, business meetings and more.The M will stay at its current location, but reside in a much larger space (16,000


News Briefs

Thursday, April 1, 2010

The U.S. Department of Agriculture (USDA) said on March 1 that it is accepting applications under the Guaranteed Rural Rental Housing program for as much as $129 million in loan guarantees in fiscal year 2010. The loans will provide rural residents with affordable rental housing.

Thursday, April 1, 2010

The U.S. Department of Housing and Urban Development has updated the fiscal year 2010 fair market rents (FMRs) for the Reno-Sparks, Nev. metropolitan statistical area (MSA), and Ward County, N.D. HUD says that as the result of comments submitted in response to the notice of proposed FMRs published on August 4, 2009...

Thursday, April 1, 2010

Native American tribes generally consider the block grants provided under the Native American Housing Assistance and Self-Determination Act (NAHASDA) to be effective, according to a study by the Government Accountability Office (GAO) released in February...

Thursday, April 1, 2010

Legislation to increase the cap for the Kansas Historic Tax Credit (HTC) program passed the Senate in February and the House in March. Under the Senate-passed version of the measure, the program will receive $5.7 million in the next fiscal year, according to the Journal-World...

Thursday, April 1, 2010

The Florida House of Representatives held a hearing on March 10 to consider a bill that would alter the state's New Markets Development Program. House Bill 1229 unanimously passed the Economic Development Policy Committee and at press time was undergoing consideration by the Transportation and Economic Development Appropriations Committee...

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