1. HOUSING TAX CREDIT AND MULTIFAMILY BOND PROVISIONS OF HR 3221 (AS OF JULY 21, 2008) Richard S. Goldstein July 24, 2008

2. STATUS HR 3221 passed Senate on July 11, 2008 by a vote of 63-5 Expected to be considered by the House on July 23 LIHTC provisions contained in the Senate-passed bill expected to be modified slightly by House and agreed to by the Senate Overall bill will contain GSE bailout provisions and could slow passage of the bill in the Senate Once passed by Congress, expectation is that President will sign the bill

3. EFFECTIVE DATES Unless otherwise noted, provisions will generally apply to buildings placed in service after date of enactment (when the President signs the bill) Result is that projects which previously received credit allocations or bond financing will be able to take advantage of many of the bills provisions State credit agencies will need to adopt procedures to deal with potential additional credit allocations

4. CREDIT RATE Provides a credit percentage of not less than 9%, effective for buildings placed in service after enactment and before December 31, 2013 (i.e., provision is sunsetted) Applies to non-federally subsidized new construction and substantial rehab No change for 4% credit for bond financed projects and acquisition of existing buildingsrate will continue to float as under current law

5. DEFINITION OF FEDERALLY SUBSIDIZED BUILDINGS Eliminates the concept of below market Federal loans Result is that new construction and sub rehab expenditures will qualify for 9% credit even if the project receives a below market Federal loan Tax-exempt bond financed projects still considered federally subsidized and therefore only eligible for the 4% credit Example: HOPE VI and HOME financed projects will qualify for 9% credits even if interest rate is below the applicable Federal rate

6. CHANGES TO DEFINITION OF ELIGIBLE BASIS Any buildings designated by housing credit agency as needing an increase in credit for financial feasibility may have eligible basis increased by agency by up to 30% Minimum rehab threshold doubled to greater of $6000 per low income unit (to be adjusted for inflation) or 20% of adjusted basis--effective for allocations made and bonds issued after enactment

7. CHANGES TO DEFINITION OF ELIGIBLE BASIS (CONTINUED) Allowable basis for community service facilities increased to 25% of first $15 Million of eligible basis plus 10% of additional basis Treatment of federal grants is clarified: –Rental, operating and interest reduction payments not considered federal grants requiring basis reduction –Joint Committee on Taxation report language to clarify that loans made from the proceeds of federal grants do not require basis reduction regardless of interest rate on loan (correcting a mistake in House report) –JCT report to state that provision intended to apply to grants made before and after enactment

8. CHANGES TO RULES FOR ACQUISITION CREDITS 10 percent related party rule (identity of interest between buyer and seller) liberalized to 50% New exception to ten year rule the ten year rule does not apply to projects assisted, financed or operated under HUD or RHS housing programs or similar state housing programs

9. SIMPLICATION PROVISIONS Prohibition on Section 8 Moderate Rehabilitation repealed Period for satisfying ten percent test for carryover allocations increased to one year from date of allocation

10. REPEAL OF RECAPTURE BONDS Recapture bond requirement on disposition of buildings or interests therein is repealed Replaced with extended period for the statute of limitations3 years following a recapture event Effective for dispositions after enactment and for dispositions prior to enactment if taxpayer elects application of new provisions Result is that outstanding bonds may be retired if taxpayer elects application of these provisions

11. MISCELANEOUS CHANGES QAPs must take into account energy efficiency and historic nature of projectseffective for allocations after 2008 Student rule amendednew exception for students previously in foster careeffective for determinations after enactment Income limits for rural projects (as defined in Section 520 of Housing Act of 1949) measured by reference to greater of area median income or national non-metro median income does not apply to bond financed projectseffective for income determinations made after enactment

12. GENERAL PUBLIC USE Project may still qualify for housing credits even if occupancy restrictions or preferences that favor tenants with: –special needs or –are members of a specified group under federal or state housing program or policy that supports housing for such group or –are involved in artistic or literary activities However, housing must still be consistent with federal Fair Housing laws

13. MULTIFAMILY HOUSING BONDS Multifamily housing bonds may be refunded (i.e., no new volume cap required) if: –Refunding bond is issued within six months of repayment of loan made with original bonds –Refunding bond issued within four years of original issuance –Maturity of refunding bond not later than 34 years after original bond is issued –TEFRA approval process is followed Second (refunding bond) does NOT generate automatic credits

14. HOUSING BOND AND CREDIT COORDINATION Next available unit rule for bond/credit projects applied on a building (not project) basis Housing credit student rules applied to bond projects Housing credit single room occupancy rules applied to bond projects New rules effective for determinations after enactment with respect to bonds issued before and after enactment

15. AREA MEDIAN INCOME RULES Income determinations for bond and housing credit projects may not decrease for any year after 2008 For HUD Hold Harmless projects, median incomes may be increased by change in AMI from prior year HUD Hold Harmless projects are those whose incomes levels were not decreased after change in income determination methodology adopted by HUD Result is that in affected areas, income and rent determinations for older projects will be higher than new projects

16. INCOME RE-CERTIFICATIONS Income re-certifications not required for 100% low income projects for bond and credit projects effective upon enactment for all such projects

17. HOUSING BOND VOLUME CAP Volume cap for residential rental and mortgage revenue bonds increased by $11 Billion for 2008 States share in increase on a per capita basis May be carried forward through 2010 Bonds may be used to refinance sub-prime loans

18. ALTERNATIVE MINIMUM TAX PROVISIONS Housing credits and rehabilitation credits (under Section 47) may be used to offset AMTeffective for buildings placed in service after 2007 for housing credits and for rehabilitation expenditures incurred after 2007 Interest on residential rental bonds, mortgage revenue bonds and veterans mortgage bonds exempt from AMTeffective for bonds issued after enactment