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| Real Estate and Business Transactions, Tax Credit Investments and General Tax, Affordable Housing: Recent Developments |
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Client Alert: Federal Low Income Housing Tax Credits
December 2008 |
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12/19/2008
Authors: GEJ
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Federal Low Income Housing Tax Credits
Tax credit rates will drop precipitously in January. If you are engaged in tax-exempt bond deals or large acquisition credit transactions, you may want to consider locking in the December rate of 3.36%.
The 4% credit percentage for projects receiving federal low income housing tax credits for January 2009 is 3.28%, a substantial drop from the December 2008 percentage of 3.36%.
Although the Housing and Economic Recovery Act of 2008 provides that the 9% credit percentage for newly constructed buildings and substantially rehabilitated buildings that are not financed with tax-exempt bond proceeds will be at least 9%, the credit percentages applicable to acquisition credits and to credits for newly constructed or substantially rehabilitated buildings financed with tax-exempt bond proceeds still must be locked (only allowed for the month the bonds are issued for a project relying on tax-exempt bond financing) or the credit rate will float until the building is placed in service.
The reduction in the 4% credit percentage (particularly if the credit percentage continues on its downward trend in the coming months) could create funding gaps in deals that are underwritten using higher credit percentages.
As a result, locking the credit percentage, if possible, for credits that would otherwise float could shore up the underwriting of a deal.
If you have questions, please contact any one of the following Gallagher Real Estate and Business Transactions tax attorneys:
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