Tax Aspects
Tax Aspects HUD-FHA loans on properties that are not low-income have no unique tax aspects. However, on approved low-income properties, the Tax Reform Act of 1986 creates three tax credits available for the following projects: construction and rehabilitation of existing housing without federal subsidies construction, rehabilitation of existing housing financed by federal subsidies, and acquisition costs for existing buildings.
In order for the low-income housing (LIH) credit—9 percent per year for 10 years for construction and rehabilitation of existing housing without federal subsidies, and 4 percent per year for 10 years for construction and rehabilitation of existing housing financed by federal subsidies, and acquisition costs for existing buildings—to be granted, the following requirements must be met:
1 Rehabilitation costs for previously owned buildings must be $2,000 per rental unit and must be incurred within 2 years of the start of the project.
2 Newly acquired buildings must have been in service for more than 10 years and not substantially improved during that time period.
3 Twenty percent of the units must be rented to tenants with income less than 50 percent of the community’s median income, or 40 percent of the units must be rented to tenants with income less than 60 percent of the community’s median income. Tenant incomes are adjusted for family size.
4 Gross rent must be less than 30 percent of the tenants’ qualifying income.
5 Low-income housing does not include transient housing.
6 Rental units must remain low-income for 15 years.
7 For investor incomes less than $250,000, a portion of the credits may offset nonpassive income—for investor incomes less than $100,000, up to $25,000 may be used against nonpassive income; the amount of credit to be used against nonpassive income is reduced by 50 percent of the amount over $100,000.
