tax-exempt bonds and low-income housing tax credits dan smith, cpa
TRANSCRIPT
Tax-Exempt Bonds and Low-Income Housing Tax Credits
Dan Smith, CPA
Public/Government Sector
Private Sector
Tax-exempt bonds(Lower interest payments)
Bondholders
Bondholders
Taxable bonds(Higher interest payments)
BondholdersMulti-Family
Housing
Private Activity “Volume Cap” Tax-exempt bonds
(Lower interest payments)
“Volume Cap”Tax-exempt
Bonds
Multi-FamilyHousing
State
Greater of $90/person or $273,270,000 for 2009
StudentLoans Docks and WharvesSingle-Family
Housing
Airports
Industrial Development
CaliforniaFloridaNevadaNew YorkOhioTexas
$3,107,023,2751,551,355,655
262,095,0001,640,306,965
974,687,9452,031,872,300
$1,144,564,324571,487,942
96,550,479604,255,799359,055,260748,500,523
Volume Capfor 2008
AdditionalBonds*
*IRS Notice 2008-79
California Volume Cap (2008)
Indiana Volume Cap (2008)
Two examples:
“Volume Cap”Tax-exempt
Bonds
BondApplication
Tax Credit Application
4% Credits! 4% Credits!
9% Credits! 9% Credits!
Bond Issuer
(City/County)
Borrower
InducementResolution
Public hearing or “TEFRA” requirement
Credit Enhancer
Bond Issuer
Purchasers
Trustee
(City/County)
Bond Proceeds
Bond Proceeds
Project
Trust Indenture
Interest Payments
MortgageNote
Bonds
DRAW Req
“AAA”“Aaa”
Invoices
Interest Payments
Bond Purchase
Agreement
Underwriter
Loan Agreement
RegulatoryAgreement
Lender
Borrower
Land plus Depreciable Basis
“Aggregate Basis”
$8.2 mil
E.B. = $7.6 mil
$7.6 mil
4%
304k
Eligible Basis
Tax Credit %
Annual Tax Credits
50% Test
Land plus Depreciable Basis
Bonds Tax-exempt bonds plus
Interest Earned
“Aggregate Basis”
≥ 50%
Tax-exempt bonds +
Interest Earned
“Aggregate Basis”
50%50%
$8.2 mil
E.B. = $7.6 mil
50% Test
$5 mil
Land plus Depreciable Basis
Bonds“Aggregate
Basis”
≥ 50%
“Aggregate Basis”
=
$8.2 mil
$5 mil
E.B. = $7.6 mil
$8.2 mil= 61%
Tax-exempt bonds +
Interest Earned
Tax-exempt bonds plus
Interest Earned
50% Test
50%50%
$7.6 mil
4%
$304k
Eligible Basis
Tax Credit %
Annual Tax Credits
Land plus Depreciable Basis
Bonds
$8.2 mil
$5 mil
E.B. = $7.6 mil
$10 mil
“Aggregate Basis”
E.B. = $9.4 mil
Tax-exempt bonds plus
Interest Earned
50% Test
50%50%50%50%
$8.2 mil= 50% $10 mil
$5 mil= 61%
=
$10,000,00149.999995%
$4.7 mil
$188k!
$7.6 mil
4%
$304k
Eligible Basis
Tax Credit %
Annual Tax Credits
$9.4 mil
$376k
States are asking developers to find other sources of financing in order to stretch the bond cap!
States are asking developers to find other sources of financing in order to stretch the bond cap!
“Aggregate Basis”
Tax-exempt bonds plus
Interest Earned
50%50%
Additional Requirements of Private Activity Bonds
Additional Requirements of Private Activity Bonds
Portion of acquisition financed with bonds = $10 mil
Rehab ≥ $1.5 million
15% rehab requirement on acquisition
15%
Additional Requirements of Private Activity Bonds
Tax-exempt bonds plus
Interest Earned
2% “Cost of Issuance Limitation”
$5 mil
BIC paid from bond proceeds ≤ $100k
($5 mil x 2%)
Additional Requirements of Private Activity Bonds
Tax-exempt bonds plus
Interest Earned
“Good Costs/Bad Costs”
$5 mil
95% of proceeds must be used for “good costs”
$4.75 mil
“Aggregate Basis”
Good Costs
Land and depreciable costs for income tax purposes
…paid or incurred after the date of the Inducement Resolution
Additional Requirements of Private Activity Bonds
Tax-exempt bonds plus
Interest Earned
“Good Costs/Bad Costs”
$5 mil
95% of proceeds must be used for “good costs”
$4.75 mil
“Aggregate Basis”
Bad Costs
Costs incurred prior to Inducement Resolution
Intangible assets
Bond issuance costs and underwriting
Loan origination fees amortized over the perm loan period
Additional Requirements of Private Activity Bonds
Inducement ResolutionBonds
60 days
InducementResolution
“Good Costs”95%
5%“Bad Costs”
9% vs. 4% Deals9% vs. 4% Deals
NewConstruction
Non-FederallySubsidized(Perm Loan)
9% credits
Construction Method
NewConstruction
Acquisition/Rehabilitation
Non-FederallySubsidized(Perm Loan)
9% credits Acq – 4%Rehab – 9%
Fin
an
cing
Meth
od
Construction Method
NewConstruction
Acquisition/Rehabilitation
Non-FederallySubsidized(Perm Loan)
9% credits Acq – 4%Rehab – 9%
FederallySubsidized(TE bonds)
4% credits Acq – 4%Rehab – 4%
Fin
an
cing
Meth
od
Construction Method
Eligible Basis Eligible Basis
x DDA/QCTx DDA/QCT
EB adj. for DDA/QCT EB adj. for DDA/QCT
x Applicable Fractionx Applicable Fraction
Qualified BasisQualified Basis
x Applicable Percentagex Applicable Percentage
Annual LIHTC Annual LIHTC
10,000,000
100%
10,000,000
100%
10,000,000
3.50%
350,000
10,000,000
100%
10,000,000
100%
10,000,000
8.00%
800,000
Project X Project Y
Financing LIHTC ProjectsFinancing LIHTC Projects
Needed Sources
Investors
Fund / Upper tier Limited Partnership
Lower Tier Operating Limited Partnership
9% Credits
CREDITS
Equity
Debt
Higher Interest
Needed Sources
Investors
Fund / Upper tier Limited Partnership
Lower Tier Operating Limited Partnership
9% Credits
Financing LIHTC ProjectsFinancing LIHTC Projects
Financing LIHTC ProjectsFinancing LIHTC Projects
Needed Sources
Investors
Fund / Upper tier Limited Partnership
Lower Tier Operating Limited Partnership
4% Credits
CREDITS
Equity
Debt
Lower Interest
Comparing “9%” Tax Credits to Bonds with “4%” Credits
“9%” Tax Credits Bonds with “4%” Credits
Financing Fees Low High to very high
Interest Rates Higher Lower to very low
Rents Lower (< 50% AMGI) Higher (60% AMGI)
Financing Leverage Low to very low High
Amenity CostsHigher (due to competitive application requirements)
Lower
Competition for Allocation/Reservation
Very high Low
