1. Lessons Learned: Dispositions & Improving Organizational Execution in Year 15
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2. Determining Year 15 Basics of Year 15
Based off first year LIHTC were claimed
Example:
First Year: 2000
Year 15: 2014
Outside of LIHTC compliance period:

3. Basics of Year 15

4. What does Year 16 mean for:
Basics of Year 15
What does Year 16 mean for:
IRS
State Agency
Investor
Early exit
Additional considerations – future recapture?
Guarantees, bonds, indemnity agreements
Are there any 15 year credits?
When does year 16 start if there are multiple BINs?

5. Basics of Year 15 Investors/Syndicators General Partner Goals:
Is there cash/value on the investment?
Exit tax consideration
Get out early to minimize Exit Tax?
Timing of exit –
Preference of specific fund/investors
Other investments within a fund
General Partner
Long term ownership (management fees, cash-flow)
Profit from sale
Resyndication

6. How is Y15 addressed in the Partnership Agreement?
Planning Stages
How is Y15 addressed in the Partnership Agreement?
Planning starts at the Placed-in-Service date
Capitalization Allocation
Depreciation Management
$10,000,000 Building Allocated as Following (no bonus depreciation) Year 10 of the deal:
(5y) 4%, (15y) 4%, (27.5y) 92% - Accumulated Losses: $4,012,121 (40%)
(5y) 6%, (15y) 6%, (27.5y) 88% - Accumulated Losses: $4,200,000 (42%)
(5y) 8%, (15y) 8%, (27.5y) 84% - Accumulated Losses: $4,387,879 (44%)
(5y) 10%, (15y) 10%, (27.5y) 80% - Accumulated Losses: $4,575,758 (46%)
$375k difference at year 10

7. Planning Stages
Monitoring Capitalization (De Minimis Safe Harbor election)
Book and tax have to be the same
Monitoring Capital Accounts
704(b) – general concept – liquidation must follow positive capital balances
Exit tax considerations
Potential issues - 704(b) trumps the waterfall calculation
Reduction in 704(b) basis from other Federal credits: Historic, solar, 45L
Managing Deferred Development Fee
Who and when is it paid?
How does that effect the capital accounts?
Is it bona fide debt?

8. Minimum Gain Calculation
Planning Stages
Minimum Gain Calculation
Determination of Qualified Non-recourse debt
Determination of Reserves in the calculation
Are the Projections anticipating a minimum gain?
9% vs. 4% deals
Allocating Losses
Special allocations in Partnership Agreement
GP contribution/ODL for operating expenses - can be allocated to GP?
Flip in P&L % after year 11
Difference consequences depending on GP (FP or NFP)

9. Planning Stages – Other Considerations
Types of Debt:
Soft debt, usually need approval before sale, or money can be paid out
HUD debt: requires HUD approval for the change in ownership
Potential for refinance
Use Agreements:
Adjustment for extended Use Agreements
Other loan, grant, or restrictive covenants

10. Purchase of LP interest Resyndication Qualified Contract
Exit Options:
Purchase of LP interest
Hold, sell, refinance
Resyndication
Qualified Contract
Right of First Refusal (ROFR)
Sale of property to 3rd Party

11. Purchase of LP Interest
GP purchases LP’s ownership interest
Technical termination is transfer of 50% interest
OR Termination if only one partner – partnership is disregarded for Federal Tax purposes
Options for GP after purchase of LP interest
Repurpose the building (Qualified Contract)
Hold the building & continue to operate/manage
Cash flow?
Sell the building to 3rd Party
Refinance and rehab the building
Resyndicate the building (more on this later…)

12. Purchase of LP interest
Considerations in purchase of LP interest
Is there a need to keep the Partnership intact? Termination vs. Technical Termination
Transfer taxes
Section 754 election
Potential Section 743(b) adjustment to GP - step up or step down
Is the Section 743(b) step down adjustment mandatory?
Partnership audit rules – new rules to be in effect for years beginning after 12/31/2017
Potential impact particularly in the realm of ‘early exits’ before end of 15 year compliance period

13. Resyndication Potential for new round of LIHTC & LIHTC equity
Rehab credits – 9%
Owner must spend the greater of $6,600 per unit (adjusted annually for inflation) OR 20% of its adjusted basis
Period of no longer than 24 months to accumulate rehab expenditures
Acquisition credits – 4%
10 year rule – must be at least 10 years between the date of acquisition and the last time the building was placed in service
Waived if substantially assisted by HUD or RD (HERA 2008)
Related Party Rule – new property owner must not be related to the previous owner
HERA 2008 – changed the related party threshold is 50% of capital or profits interest overlap in old vs. new partnership
Pre-HERA 2008 – used to be 10%

14. Allows for repurposing the building
Qualified Contract
Based on the individual state, but the state will calculate a selling price and put it on the market for 1 year. If no buyer is found, then the extended use agreement is terminated
Price is usually much higher than market value, unless the land and building have appreciated
Price: Outstanding debt + Capital Invested (adjusted for Cost of Living) – and distributions and funds available for distribution
Allows for repurposing the building
If the market has changed, allows for the building to be converted to other types of property

15. Set up to Purchase the real property not the LP interest
Right of First Refusal
Available to NFP only
Calculation:
Approx. the cost of the debt + any transfer costs/taxes
Usually ends up being $1
Set up to Purchase the real property not the LP interest
In practice, it is used to determine the price
Other factors:
Amounts of reserves and who gets them

16. Sale of property to third party
Considerations in a third-party sale:
If GP wants out of the Project, or GP/LP do not agree
Extended use agreement in place? Impact on appraised value
Buyer could have intent to resyndicate
10 year hold rule for Acquisition Credits
Waived if HUD ‘substantially assisted’ by HUD or RD
Computation of gain/loss on sale of property
Cash distributions – LPA waterfall vs. 704(b) liquidation
Non-resident withholding considerations
What if 704b liquidation trumps waterfall? (See example)
GP can purchase LP interest before sale

17. Example of sale – 80/20 cash split

18. Example – sale of property with problematic 80/20 cash split

19. Contact name, nmorton@doz.net or ewilde@doz.net
Questions?
Contact name, or
@dozcpa