PISD & Qualification Issues

Michael Kotin

Kay-Kay Realty Corp.2007

Placed-in-Service Dates

Placed-in-Service Dates

Two Types of Developments:

Placed-in-Service Dates

Two Types of Developments:

New Construction

Placed-in-Service Dates

Two Types of Developments:

New Construction Acquisition / Rehab

Placed-in-Service Dates

New Construction

Placed-in-Service Dates

New Construction By December 31st of year which is 2 years from allocation year.

Placed-in-Service Dates

New Construction By December 31st of year which is 2 years from allocation year.

Example: if allocation received in 2006, PISD must occur before December 31, 2008.

Placed-in-Service Dates

New Construction By December 31st of year which is 2 years from allocation year.

Defined statutorily by first certificate of occupancy in each building.

Placed-in-Service Dates

New Construction By December 31st of year which is 2 years from allocation year.

Defined statutorily by first certificate of occupancy in each building. May vary from building to

building.

Placed-in-Service Dates

New Construction By December 31st of year which is 2 years from allocation year.

Defined statutorily by first certificate of occupancy in each building.

Occupancy cannot predate PISD.

Placed-in-Service Dates

Acquisition / Rehab

Placed-in-Service Dates

Acquisition / Rehab Date chosen by Owner.

Placed-in-Service Dates

Acquisition / Rehab Date chosen by Owner. PISD election need not

be made until filing due date of tax return for year units are placed in service.

Placed-in-Service Dates

Acquisition / Rehab Date chosen by Owner. Not dictated by

Certificate of Occupancy.

Placed-in-Service Dates

Acquisition / Rehab Date chosen by Owner. Not dictated by

Certificate of Occupancy

Rehab need not be completed.

Placed-in-Service Dates

Acquisition / Rehab Date chosen by Owner. Not dictated by

Certificate of Occupancy

Rehab need not be completed. At least one unit in each

building must be suitable for occupancy.

Placed-in-Service Dates

Acquisition / Rehab Date chosen by Owner. Not dictated by

Certificate of Occupancy.

Rehab need not be completed

Tenancies may predate PISD.

Acquisition / Rehab

Acquisition / Rehab

Choice of PISD impacts:

Acquisition / Rehab

Choice of PISD impacts:

Aggregation period for expenses.

Acquisition / Rehab

Choice of PISD impacts:

Aggregation period for expenses. Capitalization period for construction interest.

Acquisition / Rehab

Choice of PISD impacts:

Aggregation period for expenses. Capitalization period for construction interest. Applicable credit percentage.

Acquisition / Rehab

Choice of PISD impacts:

Aggregation period for expenses. Capitalization period for construction interest. Applicable credit percentage. Start period for credits.

Acquisition / Rehab

Aggregation period for expenses:

Acquisition / Rehab

Aggregation period for expenses:

Generally, rehab costs may be aggregated for 24 month period prior to PISD.

Acquisition / Rehab

Aggregation period for expenses:

Generally, rehab costs may be aggregated for 24 month period prior to PISD.

PLUS

Acquisition / Rehab

Aggregation period for expenses:

Generally, rehab costs may be aggregated for 24 month period prior to PISD.

PLUS

Costs incurred through the end of the owner’s taxable year.

Acquisition / Rehab

Aggregation period for construction interest:

Acquisition / Rehab

Aggregation period for construction interest:

Generally, may capitalize interest until property is placed in service.

Acquisition / Rehab

Aggregation period for construction interest:

Generally, may capitalize interest until property is placed in service.

For “automatic” credits associated with tax exempt bonds, no limitation to eligible basis / available credits.

Acquisition / Rehab

Aggregation period for construction interest:

Generally, may capitalize interest until property is placed in service.

For “automatic” credits associated with tax exempt bonds, no limitation to eligible basis / available credits.

Best to delay PISD as long as possible in order to increase total eligible basis.

Acquisition / Rehab

Aggregation period for construction interest:

Generally, may capitalize interest until property is placed in service.

For “automatic” credits associated with tax exempt bonds, no limitation to eligible basis / available credits.

Best to delay PISD as long as possible in order to increase total eligible basis.

Careful to meet 50% test.

Acquisition / Rehab

Applicable credit percentage:

Acquisition / Rehab

Applicable credit percentage:

PISD may be chosen by taxpayer after end of year.

Acquisition / Rehab

Applicable credit percentage:

PISD may be chosen by taxpayer after end of year.

Chosen after all monthly credit percentages for year have been published.

Acquisition / Rehab

Applicable credit percentage:

PISD may be chosen by taxpayer after end of year.

Chosen after all monthly credit percentages for year have been published.

May choose the month with the highest published credit percentage.

Acquisition / Rehab

Start period for credits:

Acquisition / Rehab

Start period for credits: “Look back” applies no matter when in year units are placed in service.

Acquisition / Rehab

Start period for credits: “Look back” applies no matter when in year units are placed in service.

“Look back” goes back to LATTER of:

Acquisition / Rehab

Start period for credits: “Look back” applies no matter when in year units are placed in service.

“Look back” goes back to LATTER of:

1st day of taxpayer’s taxable year, or

Acquisition / Rehab

Start period for credits: “Look back” applies no matter when in year units are placed in service.

“Look back” goes back to LATTER of:

1st day of taxpayer’s taxable year, or

Acquisition date.

Example

Example

Assumptions:

Example

Assumptions: One building project (for

convenience).

Example

Assumptions: One building project (for

convenience). Calendar year taxpayer.

Example

Assumptions: One building project (for

convenience). Calendar year taxpayer. Property acquired July

15, 2006.

Example

Assumptions:

Placed in service October, 2006:

Example

Assumptions:

Placed in service October, 2006:

Aggregation of costs through December 31, 2006.

Capitalization of construction interest through October, 2006 at the latest (generally).

Credit percentage for month of October, 2006 used.

Credits may commence as early as August, 2006.

Example

Assumptions:

Placed in service October, 2007:

Aggregation of costs through December 31, 2007.

Capitalization of construction interest through October, 2007 at the latest (generally)

Credit percentage for month of October, 2007 used.

Credits may commence as early as January, 2007.

Example

Assumptions:

Placed in service October, 2008:

Aggregation of costs through December 31, 2008 except that costs incurred from July, 2006 through October, 2006 may not be included.

Capitalization of construction interest through October, 2008 at the latest (generally).

Credit percentage for month of October, 2008 used.

Credits may commence as early as January, 2008.

Tenant Qualification

Tenant Qualification

Qualification may predate PISD.

Tenant Qualification

Qualification may predate PISD.

Qualification may predate “look back”.

Tenant Qualification

Qualification may predate PISD.

Qualification may predate “look back”.

Qualification may NOT predate acquisition date.

Tenant Qualification

Qualification may predate PISD.

Qualification may predate “look back”.

Qualification may NOT predate acquisition date.

Recertification at PISD or “look back” date is NOT required.

Rev. Proc. 2003-82

Is a safe harbor provision.

Assumes tenant occupancy in advance of PISD or “Look back” date.

Is NOT a requirement.

Rev. Proc. 2003-82

Is designed to insure compliance with Next Available Unit Rule.

Relevant on mixed-income properties with buildings which have applicable fractions under 100%.

NOT applicable on 100% tax credit properties where ALL units are always rented to qualified households.

NOT relevant on buildings in mixed-income properties which have 100% applicable fractions.

Rev. Proc. 2003-82

Safe harbor provided if management “tests” eligibility of existing residents.

Test may be retroactive as long as retroactive compliance with NAU can be demonstrated.

Does NOT require that existing residents have incomes below either move-in or recertification limits.

Does NOT require that “test” be a fully documented recertification. Standard may be substantially less.

Placed-in-Service Dates

Other Considerations:

Placed-in-Service Dates

Two Types of Developments:

Investor in ownership

Placed-in-Service Dates

Two Types of Developments:

Investor in ownership

Syndicator secondary sale completed