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On the second episode of Buchanan Ingersoll & Rooney’s Tax Facts podcast, Becky Lando and Michelle Yarbrough Korb discuss the latest in the utilization of low-income housing tax credits and how new changes have made these vehicles even more attractive for investors.
Becky Lando is a shareholder at Buchanan and a member of the firm’s real estate team. Michelle Yarbrough Korb is also a shareholder at Buchanan with a practice focused on the affordable housing industry.
In the episode, Lando and Yarbrough Korb discuss:

  • What low-income housing tax credits are and how they work.
  • What changes the recent COVID-19 relief bills made to low-income housing tax credits and how changes affect those who want to invest in affordable housing construction.
  • How eviction moratoriums affect low-income housing tax credits and whether it’s good or bad news for landlords.
  • The Housing Choice Voucher Program, commonly referred to as Section 8, which also saw changes due to COVID-19 relief.
  • Expectations on future legislation or changes that would make affordable housing more or less of an attractive investment from a tax perspective.
  • The need to work with experienced counsel before jumping into the world of affordable housing investment.

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Podcast Transcript

Becky Lando: Hello and welcome back to Buchanan Ingersoll & Rooney’s Tax Facts, a podcast about the world of tax law, real estate law and changes that affect businesses and investors. I'm your host today, Becky Lando, a shareholder at Buchanan and a member of our firm's real estate team. I'm joined by my colleague Michelle Yarbrough Korb, a fellow shareholder at Buchanan, whose practice is focused on the affordable housing industry. Michelle works with developers, public housing agencies and their related entities on the development, investment and utilization of low-income housing tax credits and federal programs. Welcome Michelle.

Michelle Yarbrough Korb: Hello Becky.

Becky Lando: In the first episode of Tax Facts, we talked about opportunity zones and a handful of important dates and deadlines that affected many taxpayers. If you haven't listened to that yet, I recommend you check it out. Today we're going to talk about another advantage for investors and developers in the multifamily and construction space, the low-income housing tax credit. Michelle, before we dive into some of the details and recent updates, can you first explain to our listeners what exactly the low-income housing tax credit is and how it works?

Michelle Yarbrough Korb: Sure Becky, I'd be happy to. So, the low-income housing tax credit, which is also known as LIHTC, is the largest production vehicle for affordable housing. It's a dollar-for-dollar reduction in federal tax liability, and it's claimed pro rata over 10 years. You apply for this allocation of low-income housing tax credits from a state allocating agency, and each state has its own unique process and deadlines that are set forth in its qualified allocation plan. Now, if you are fortunate enough to receive an allocation of low-income housing tax credits, you can monetize those by receiving capital from investors who in turn received the vast majority (roughly 99%) of the tax credits, the depreciation and the losses. And most investors in this space are Community Reinvestment Act investors. This is a heavily regulated area, and it carries significant restrictions on the use of the property and the income of the tenants for at least 30 years. Many parties are involved and need to be satisfied – from the IRS, the state allocating agency, investors, lenders, just to name a few. So, there are two types of low-income housing tax credit, the 9% and the 4%. The amount of the credit equals the building's qualified basis multiplied by the credit percentage. Until 2015, the tax credit percentage was a floating present value rate under both programs. So, the 9% credit supports new construction and rehabilitation. It's highly competitive, and in 2015 it was fixed at 9%. The 4% credit supports a project financed by tax exempt bonds or it may be applied to building acquisition costs with a rehabilitation project.

Becky Lando: So, you mentioned that there was a state allocation, but just to be clear, these credits, although they're allocated at the state level, they're still in fact federal tax credits? Is that right?

Michelle Yarbrough Korb: Yes, that's correct.

Becky Lando: So, from what I understand the COVID-19 relief bill that was passed at the end of 2020 included some changes to the low-income housing tax credit. Can you explain what those changes were and how they affect those potentially interested in investing in affordable housing projects?

Michelle Yarbrough Korb: So, the big news at the very end of the year, in late December, is that the 4% tax credit rate was fixed by the spending bill that Trump signed on December 27th. Prior to this, the rate recently hovered just above 3%, so that's almost a whole percent increase. And the benefit to this is now many deals are going to pencil out in markets that just previously didn't support it. Sometimes lower rent levels or lack of subsidy prevented those deals from working. So, we envision that supply is going to increase, and we could also see an impact on pricing that may result in new investors entering this market.

Becky Lando: So, one of the other effects of COVID-19 that a lot of people are aware of is that more people than ever are struggling to pay rent. As a result, the CDC, as well as some states and localities, instituted eviction moratoriums. What's the situation here? Are landlords on the hook? And could you talk about this subject in the context of affordable housing projects?

Michelle Yarbrough Korb: Sure. So a little history on the eviction moratorium. It started under the CARES Act and at first it only applied to tenants in certain rental properties that either had federal assistance or federally related financing. Then, in September of last year, the CDC director issued a broader order that temporarily halted evictions. The Consolidated Appropriations Act extended this. And then since then, the CDC director has twice renewed or extended this order. It was most recently set to expire on March 31st, but now it's running through the end of June of this year. Now, to be clear, the moratorium is not rent relief. The rent is still owed. This is merely providing a protection to struggling renters who've given their landlord a declaration saying we're not able to pay rent. And we're trying to avoid these situations where folks become homeless and increase the spread of COVID-19. But these tenants still have to agree to make their best efforts to pay what they can, and that includes applying for available funds. So, the good news for landlords is there are a lot of funds available. Unfortunately, they’re still being rolled out. So, the first tranche was under the CARES Act. It provided a funding stream for emergency rental assistance. Then we had the Consolidated Appropriations Act that also provided emergency rental assistance for the payment of rent and rent arrears. And most recently in March with the American Rescue Plan, just over $21 billion of emergency rental assistance has been pushed out. And these funds can be used to provide financial assistance from rent and utility payments to other housing expenses, and those can be provided for 18 months. Now the American Rescue Plan also extended from the end of this year to September 30th of next year the deadline to spend the initial $25 billion tranche that was funded in December of 2020. So, the hope is by keeping the ban in place, the eviction moratorium, through the end of June, that this rent relief from the stimulus packages will get into the hands of renters and their landlords and this will stabilize the situation by making landlords whole and giving renters additional time as things stabilize, vaccines roll out, to hopefully be able to find work and be able to pay rent on a going forward basis.

Becky Lando: So, Michelle, another relevant area affected by COVID-19 relief is the housing choice voucher program, commonly referred to as Section 8, where tenants use vouchers to pay a portion of their rent for a unit that's on the private market. Can you explain the impact of that?

Michelle Yarbrough Korb: So historically, many landlords have been hesitant to get involved with Section 8 if they're in a jurisdiction that doesn't have source of income protection and they have a choice. But with the eviction moratoriums, many landlords are struggling to collect rent. So, the idea of regularly receiving a portion of each month's rent in the form of a voucher funded by the federal government is attractive, as it's a stable flow of income. And this also carries over to benefits to both developers and LIHTC investors. Subsidized projects are more attractive. Project based rental assistance, where vouchers are attached to a project rather than the tenant, are highly favored going forward. And there's more good news on that front. Additional vouchers will soon be available. Again, in the March American Rescue Plan, $5 billion for housing choice vouchers was authorized. Now these are going to go to targeted populations that are at risk, and they focus on homelessness and escaping violence. These will be administered by public housing agencies across the country.

Becky Lando: Staying on this topic of political movement for a second, we know that President Biden is working to change course on a number of fronts from the prior administration. Housing continues to be the subject of attention. In fact, there was a congressional hearing on housing issues mid-March, something that hasn't happened since 2012. Can we expect any future legislation or changes that would make affordable housing more or less attractive investment from a tax perspective or other perspective?

Michelle Yarbrough Korb: So, there are going to be more opportunities for developers to develop and thus investors to invest because with the fixed 4% low-income housing tax credit, this is going to increase the number of transactions using that credit. Additionally, $1.2 billion has been allocated as disaster low-income housing tax credits. This impacts 11 states as well as Puerto Rico that experienced non COVID-19 disasters. And finally, it's anticipated that the Affordable Housing Credit Improvement Act will be reintroduced following the Easter recess. While that text isn't available yet, a prior version of the bill would expand the housing credit by 50%, among other measures. So, there's definitely looking to be a great number more deals on the horizon and thus opportunities for investment. And because of this, new investors may decide to come into the low-income housing tax credit market based on this increased demand. But additionally, the potential for an increase in the corporate tax rate that's being proposed to fund President Biden's infrastructure and climate proposal will make tax credits more attractive. So, this is good for investors. The 4% LIHTC transactions are more attractive investments. They will include lower leverage and if demand exceeds investment, lower prices. It's going to allow investors to be more selective. More choices regarding structure and partners strength. On the flip side, there's going to be increased pressure on developers. While potentially more deals will work out (from a financial perspective), they're going to have to focus on the things that matter to these investors – guarantees, liquidity, reserves as well as longer sight control, the escalating supply costs, particularly lumber, certain appliances, and then increased timelines for COVID-19 protocols or potential future issues like this pandemic.

Becky Lando: Finally, this is understandably as you've explained, Michelle and extremely regulated environment. And there's a lot involved when undertaking developments and investments using these sought-after tax credits. Can you explain what's involved and why it's so important to work with experienced counsel before jumping into an affordable housing project?

Michelle Yarbrough Korb: Sure. So of course, the first thing you're going to focus on is that you're structuring a transaction to score well because you need to receive a reservation of low-income housing tax credits. And that process and the application is different in every state, as we talked about. So, you need to focus on getting those points. But assuming you do receive those low-income housing tax credits, while that's the largest piece of the financing, it's not enough on its own to finance a development. So, when a developer is seeking loans and subsidies, like project-based vouchers, it's important to account for all of the competing requirements and restrictions. This is why you need to work with someone who understands the competing requirements and all of the "what ifs?" to achieve a successful development. You know, putting it in context, the pandemic led to closing delays that pushed a lot of site control timelines beyond anything anyone had anticipated when they secured those sites. For example, they entered into an option agreement. So fortunately, I've always advised my clients to have control beyond the minimum requirement of your state allocating agency and to build in viable options to extend because you never know what will happen. So, as you can see, these deals involve much more than just tax issues. You need to understand things beyond the tax in order to succeed in the affordable housing industry.

Becky Lando:  Michelle, this is such an interesting topic and one that's top of mind for lawmakers as well as our clients and folks that we deal with in the in the markets that we serve. I want to thank you for being on the podcast today to share a bit of your knowledge with our listeners. To hear this and future episodes of Tax Facts, please make sure to subscribe to this podcast on Apple Podcasts, Google Podcasts, Spotify or wherever you prefer to listen. To learn more about Buchanan Ingersoll & Rooney's experience in tax and real estate law, visit Buchanan Ingersoll & Rooney PC ( or more specifically Affordable Housing Lawyers | Buchanan Ingersoll & Rooney PC ( Until next time I'm Becky Lando, along with my colleague at Buchanan Michelle Yarbrough Korb. Thanks for listening to Tax Facts.