advocacy update using historic tax credits in new york city wednesday, june 24, 2009 5:00 pm new...
TRANSCRIPT
Advocacy UpdateAdvocacy UpdateUsing Historic Tax Credits in New York CityUsing Historic Tax Credits in New York City
Wednesday, June 24, 2009Wednesday, June 24, 20095:00 pm5:00 pm
New York Athletic Club - New York, New YorkNew York Athletic Club - New York, New York
Changes to the HTC included in the
Housing and Economic Recovery Act of 2008
• Background and Purpose. In July, 2008, Congress made positive changes to the Historic Tax Credit for the first time since its enactment in 1981 including:
• Permitting use of the HTC to offset the Alternative Minimum Tax and providing a way to efficiently address the needs of small urban and rural deals
• An increase from 35-50% of the allowable leasing to tax-exempt entities before triggering complicated and costly disqualified lease rules
• A requirement that state HFAs include priorities for HTC transactions in allocating the Low-Income Housing Tax Credit through their Qualified Allocation Plans.
• A roll back of changes to the OCC’s Part 24 regulations that makes it easier for national banks to invest equity in HTC transactions.
Legislation
HTC AMT Offset Article Availablewww.ntcicfunds.com
www.novoco.com
Impact of H.R. 3221: The Housing and Economic Recovery Act of 2008on Individual Rehabilitation Tax Credit Investors
(Making Small Rehabilitation Tax Credit Deals Work)Executive SummaryThe federal historic tax credit has been difficult to use on small Main Street-scale rehabilitation projectsbecause the transaction costs are high and investor interest in these “mom and pop” deals has been verylow. Recent federal legislation provides a simpler, less costly approach to attracting investor equity tothese projects without the need to involve out-of-town lawyers, accountants and investors.Now local developers who intend to rehabilitate small buildings generating small amounts of credits,and who qualify as “real estate professionals” under IRS regulations, can take the credits themselves anduse the credits to lower their Alternative Minimum Tax (AMT). Developers or property owners who donot qualify as real estate professionals can work with their local accountant to identify an individual whois both a real estate professional and subject to AMT. Through the formation of a limited partnership orlimited liability company, this investor can be made a transaction partner for purposes of paying theproperty owner cash in exchange for the right to use the credits.
Legislation
What Are the New Rules? Who is a Real Estate Professional?• A person who:
1. Spends more than 50% of their time and more than 750 hours per year in Real Estate activities.
2. Must be an owner (at least 5%) in the real estate business that they provide their personal services to.
Legislation
What Are the New Rules? What are Real Estate Activities?
Examples of “Real Property Trades or Businesses”:
• Real Estate Developers• Construction Contractors• Property Managers• Real Estate Brokers • Leasing agents• Architects
Legislation
Local Real Estate Professional(Investor)
Property Ownership LLC
.01% owned by building owner99.99% owned by REP
Tax credits & % of Profits
What Are the New Rules? Or If Not– Bring in REP as Investor
Equity
Tenant
Rent
Property Owner/Developer
% of Profits
Equity
Legislation
HTCC Membership
• HTCC Board Members• Brian Cave• DFC Group • Holland and Knight• Nixon Peabody• Novogradac & Company• NTCIC • Transcapital• US Bank
Legislation
HTCC Membership
• HTCC Members• Alexander Company• Bank of America• Clark Hill, PLC • Farris Matthews• Foss and Company • Heritage Consulting • Historic Restoration, Inc.• Kasper Mortgage • MacRostie Historic Advisors, LLC• Plante Moran• Polsinelli Shugart• Reznick Group• Tax Credit Capital• Wisconsin Preservation Fund, Inc
Legislation
2009 Legislative ProposalsHistoric Tax Credit Coalition
Legislative Priorities• Amend Section 47 of the Code:
• to increase the HTC credit rate from 20% to 30% for smaller projects. Small project redefined as QREs $5MM or less.
• to allow the 10% credit to be used for residential rental housing.
• to make all buildings older than 50 years eligible for the 10% rehabilitation credit.
• to eliminate all disqualified lease rules (except for the sale leaseback) that currently preclude the use of the HTCs on properties where nonprofits or government agencies rent more than 50% of the leasable space.
• To provide transferability of the credit (sale of the credit as a certificate) for deals under $5 million in QREs.
Legislation
2009 Legislative ProposalsHistoric Tax Credit Coalition
Legislative Priorities• Amend Section 47 to allow for moderate rehabilitation by reducing the
substantial rehabilitation test to 50 percent of adjusted basis.
• Enact a Green “add on” Credit, formulated with the National Trust for Historic Preservation.
• Ensure that state historic preservation tax credit proceeds are not counted as federal income and taxed by the Internal Revenue Service.
Legislation
2009 Legislative ProposalsHistoric Tax Credit Coalition
Regulatory Priorities• Ask Congress to provide guidance to the NPS to allow green
technology improvements to properties that also earn the federal historic tax credit.
• Ask Congress to provide guidance to the IRS on its implementation of the easement reforms of 2006.
• Exempt the HTC from the Codification of Economic Substance.
Legislation
