On July 1, 2020, the Internal Revenue Service (IRS) issued Notice 2020-53. The notice provides COVID-19 pandemic relief to parties in the low-income housing sector by extending due dates or suspending requirements for federal low-income housing tax credit developments through December 31, 2020. It also provides other relief related to the operation of low-income housing buildings or projects.
Extended Due Dates:
If the last day for any of the following periods is scheduled to be on or after April 1, 2020 and before December 31, 2020, the last day is extended to December 31, 2020, by the notice:
- 10 Percent Test. Most properties developed with federal 9% low-income housing tax credit (LIHTC) seek a carryover allocation pursuant to the 10 percent test so that the qualified building must be placed in service not later than the close of the second calendar year following the calendar year in which the credit allocation is made. To meet the 10 percent test, property owners are required to expend 10 percent of the property’s reasonably expected basis within 12 months of the date of the allocation. Property owners now have until December 31, 2020 to meet this 10 percent test, if 12 months from the date of the allocation would have been on or after April 1, 2020 and before December 31, 2020.
- 24-Month Minimum Rehabilitation Expenditure Period. Generally, rehabilitation expenditures treated as a separate new building are considered placed in service at the close of the 24-month period during which the expenditures were incurred. Property owners now have until December 31, 2020 to meet this 24-month minimum rehabilitation expenditure requirement, if the close of the 24-month period would have been on or after April 1, 2020 and before December 31, 2020.
- Reasonable Period for Restoration or Replacement in the Event of Casualty Loss. A building is not subject to recapture by reason of a casualty loss to the extent the loss is restored by reconstruction or replacement within a reasonable period established by the Secretary of the Treasury or his delegate. The notice extends to December 31, 2020 the reasonable period for a building owner to restore, by reconstruction or replacement, a casualty loss. Section 42(j)(4)(E) only provides recapture relief for casualty events; it does not provide for the allowance of credit during the period of time that the building is being restored due to casualty not covered by Rev. Proc. 2014-49 (regarding a major disaster). If a building is damaged by a casualty and fully restored and rentable to low-income tenants within the same taxable year, then there is no recapture and no loss of credits.
- Major Disaster Declaration. For purposes of section 8.02 of Rev. Proc. 2014-49, if due to an event for which the President has declared a major disaster under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, a low-income building has suffered a casualty loss that would have reduced its qualified basis, and if the reasonable restoration period determined by the applicable state or local housing credit agency for the building ends on or after April 1, 2020, and before December 31, 2020, the last day for the owner of the building to complete the repair and restoration is postponed to December 31, 2020. Note that otherwise, the reasonable restoration period established by the applicable state or local housing credit agency must not extend beyond the end of the 25th month following the close of the month of the major disaster declaration. The LIHTC amount allowable during the reasonable restoration period is determined by using the building’s qualified basis at the end of the taxable year immediately preceding the first day of the incident period for the major disaster.
Similarly, the notice extends to December 31, 2020, the following periods related to qualified residential rental property financed by certain bonds, if the last day for any of these periods is scheduled to be on or after April 1, 2020, and before December 31, 2020:
- 12-Month Transition Period to Meet Set-Asides for Qualified Residential Rental Projects. The 12-month transition period when bonds to which section 142(d) of the Internal Revenue Code applies are used to acquire an existing residential rental project. The last day of a 12-month transition period that ends on or after April 1, 2020, and before December 31, 2020, is postponed to December 31, 2020.
- Section 147(d) 2-Year Rehabilitation Expenditure Period for Bonds Used to Provide Qualified Residential Rental Projects. If a bond is used to provide a qualified residential rental project and if the §147(d) 2-year rehabilitation expenditure period for the bond ends on or after April 1, 2020, and before December 31, 2020, the last day of that period is postponed to December 31, 2020.
The notice also suspends some compliance requirements through December 31, 2020. These include the following:
- The owner of a low-income building is not required to perform income recertifications (i.e., annual income recertifications for low-income tenants) in the period between April 1 and December 31, 2020.
- A state or local housing credit agency is not required to conduct compliance monitoring inspections or reviews in the period between April 1 and December 31, 2020.
Property owners must resume the recertifications, and the state or local housing credit agencies must resume the inspections as due after December 31, 2020.
Under the notice, the temporary unavailability or closure of an amenity or common area in a low-income building or project during some or all of the periods between April 1 and December 31, 2020, does not reduce the eligible basis of the building. However, the amenity or common area must be unavailable or closed solely in response to the COVID-19 pandemic, and not because of any other noncompliance.
Additionally, medical personnel or other essential workers (as defined by state or local governments) who provide services during the COVID-19 pandemic may receive emergency housing from April 1 to December 31, 2020 under Rev. Proc. 2014-49 or Rev. Proc. 2014-50 and be treated as if they were an individual who is displaced from his or her principal residence as a result of a major disaster and whose principal residence was located in a major disaster area designated as eligible for individual assistance by FEMA.
The notice did not extend the placed in service deadline by which projects must be placed in service to receive the LIHTC.