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Published byAlexa Thomson Modified over 11 years ago
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Tax-Exempt Bonds and Low-Income Housing Tax Credits Dan Smith, CPA
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Public/Government Sector Private Sector Tax-exempt bonds (Lower interest payments) Bondholders Taxable bonds (Higher interest payments) Bondholders Multi-Family Housing Private Activity Volume Cap Tax-exempt bonds (Lower interest payments)
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Volume Cap Tax-exempt Bonds Multi-Family Housing State Greater of $90/person or $273,270,000 for 2009 Student Loans Docks and Wharves Single-Family Housing Airports Industrial Development California Florida Nevada New York Ohio Texas $3,107,023,275 1,551,355,655 262,095,000 1,640,306,965 974,687,945 2,031,872,300 $1,144,564,324 571,487,942 96,550,479 604,255,799 359,055,260 748,500,523 Volume Cap for 2008 Additional Bonds* *IRS Notice 2008-79 California Volume Cap (2008) Indiana Volume Cap (2008) Two examples:
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Volume Cap Tax-exempt Bonds Bond Application Tax Credit Application 4% Credits! 9% Credits!
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Bond Issuer (City/County) Borrower Inducement Resolution Public hearing or TEFRA requirement
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Credit Enhancer Bond Issuer Purchasers Trustee (City/County) Bond Proceeds Project Trust Indenture Interest Payments Mortgage Note Bonds DRAW Req AAA Aaa Invoices Interest Payments Bond Purchase Agreement Underwriter Loan Agreement Regulatory Agreement Lender Borrower
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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
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Land plus Depreciable Basis Bonds Tax-exempt bonds plus Interest Earned Aggregate Basis 50% Tax-exempt bonds + Interest Earned Aggregate Basis 50% $8.2 mil E.B. = $7.6 mil 50% Test
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$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% Test50% $7.6 mil 4% $304k Eligible Basis Tax Credit % Annual Tax Credits
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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% Test50% 50% $8.2 mil = 50% $10 mil $5 mil = 61%= $10,000,001 49.999995% $4.7 mil $188k! $7.6 mil 4% $304k Eligible Basis Tax Credit % Annual Tax Credits $9.4 mil $376k
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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%
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Additional Requirements of Private Activity Bonds Portion of acquisition financed with bonds = $10 mil Rehab $1.5 million 15% rehab requirement on acquisition 15%
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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%)
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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 This 95% in 95-5 test is slightly different than the good cost/bad cost 95%, correct? $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
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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 This 95% in 95-5 test is slightly different than the good cost/bad cost 95%, correct? $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
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Additional Requirements of Private Activity Bonds Inducement Resolution Bonds Three dates and items: Bond Issuance Intent Inducement Resolution Reimbursement Resolution Whats the whole 60 days thing? (see p. 43 of Orrick booklet) I think Id be fine if we were just talking about Reimbursement Resolution P. 10 of Orrick says 20% of bonds could be used to reimb certain soft costs…see 18 months rule on p. 11 60 days Inducement Resolution Good Costs 95% 5% Bad Costs
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9% vs. 4% Deals
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New Construction Non-Federally Subsidized (Perm Loan) 9% credits Construction Method
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New Construction Acquisition/ Rehabilitation Non-Federally Subsidized (Perm Loan) 9% creditsAcq – 4% Rehab – 9% Financing Method Construction Method
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New Construction Acquisition/ Rehabilitation Non-Federally Subsidized (Perm Loan) 9% creditsAcq – 4% Rehab – 9% Federally Subsidized (TE bonds) 4% creditsAcq – 4% Rehab – 4% Financing Method Construction Method
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Eligible Basis x DDA/QCT EB adj. for DDA/QCT x Applicable Fraction Qualified Basis x Applicable Percentage 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 XProject Y
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Financing LIHTC Projects Needed Sources Investors Fund / Upper tier Limited Partnership Lower Tier Operating Limited Partnership 9% Credits CREDITS Equity Debt Higher Interest
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Needed Sources Investors Fund / Upper tier Limited Partnership Lower Tier Operating Limited Partnership 9% Credits Financing LIHTC Projects
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Needed Sources Investors Fund / Upper tier Limited Partnership Lower Tier Operating Limited Partnership 4% Credits CREDITS Equity Debt Lower Interest
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Comparing 9% Tax Credits to Bonds with 4% Credits 9% Tax CreditsBonds with 4% Credits Financing Fees LowHigh to very high Interest Rates HigherLower to very low Rents Lower (< 50% AMGI)Higher (60% AMGI) Financing Leverage Low to very lowHigh Amenity Costs Higher (due to competitive application requirements) Lower Competition for Allocation/Reservation Very highLow
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