1. Basics of IRS Code Section 42 Low-Income Housing Tax Credits

2. Introduction
What is NCHFA?
Why am I here?
What is the LIHTC?

3. § 105‑277.16
“[D]evelopment to which [NCHFA] allocated a federal tax credit under section 42 is designated a special class of property under… the NC Constitution and must be appraised, assessed, and taxed in accordance with this section.”

4. § 105‑277.16
“The assessor must use the income approach as the method of valuation for property classified under this section and must take rent restrictions that apply to the property into consideration in determining the income attributable to the property.”

5. § 105‑277.16
“The assessor may not consider income tax credits received under section 42 or under G.S. 105‑ in determining the income attributable to the property.”

6. LIHTC housing is Always rental Many types of structures
Rehabilitation and new construction
2,000 units and 35 awards annually
Total of 50,000 units in 1,400 projects
Only awarded by NCHFA

7. IRS Code Section 42 Owners must follow rules on
Income,
Rent, and
Suitability
Contained in recorded use agreement
NCHFA monitors and reports violations to the IRS

8. IRS Code Section 42 Rent limit is actually a maximum housing expense
Generally is 60% area median income less utility allowance
Specifics are very complicated for both AMI and utilities

9. IRS Code Section 42 Rules apply for 30 years
Are ways to exit, including foreclosure
NCHFA provides DoR with a list of Section 42 properties
Includes all, with indicator of which are added and removed

10. The List Property Name City County Cycle Address Zip Units Removed
Added
Auburn Spring
Burlington
Alamance
2005
2950 Crouse Lane
27215 48
Auburn Trace Apartments
2944 Crouse Lane 80
Graham Village Apts
Graham
1993
920 E.Hanover Road
27253 50
Cannon Place
1997
508 E.Parker Street 74
Westhampton Apts
Mebane
1989
1015 Mebane Airport Road
27302 40
Deerfield Crossing Apts
1996
600 Deerfield Trace
118
Mebane Mill Lofts
2009
301 W Washington Street 75 1
Ridgeway Apts
Taylorsville
Alexander
1987
First Ave Dr Se
28681 32
The Oaks
100 2nd Avenue
Ridgeview Apts
Sparta
Alleghany
1988
218 E. Whitehead St
28675 36
Highland Village
1999
29 Highland Village Circle 30
Maplewood Apts
2001
273 Independence Road
Pine Ridge Place
Polkton
Anson
401 Pine Ridge Place
28135 16
Wyndsor Downs
2004
11 Wyndsor Court
Pine Terrace Apts
Wadesboro
100 Pine Bluff Street
28170 24
Laurel Commons Apts
Burns Street
Oak Hill
1331 North Greene Street 72

11. Common issues
Not all affordable projects qualify, some are only in other programs
Changes, new and removed
How to value- NCHFA is not in a position to advise
Always welcome to ask questions

12. How do LIHTCs make housing affordable?
YIKES!

13. Actually has a simple explanation:
Funds invested for the tax credit partially replace loan financing
But what does that mean?

14. Loans have to be repaid (usually)
A 36 unit apartment complex costs $3,380,000 to build
Borrow $3,080,000 from bank
(the rest from an investor)
Monthly payment of $24,228
That’s $673 per household every month!

15. If the project has Housing Credits…
Whoever owns the building avoids $2,592,000 in taxes over 10 years
Amount calculated on depreciable items (bulldozer test)
Determined up-front

16. What the rest of us get for this tax break
For every dollar of the $2,592,000 a large company makes an investment
Around $0.85 per $1 in tax reduction
Thus $0.15 better off; expects no other return

17. Now time for a little math…
“price” x tax credits = investment
$0.85 x $2,592,000 = $2,203,200
Still a $3.38 million project
cost – investment = loan amount
$3.38M - $2.20M = $1.18M loan

18. Finally the conclusion
Monthly payment on a $1,176,800 loan is $9,257, which = $257/unit
If built without tax credits monthly payment is $24,228, or $673/unit
Investment saves tenant households $416 each month

19. Summary of the numbers MARKET Cost $3,380,000 Invest $300,000
Loan $3,080,000
Payment $24,228
Units 36
Per unit $673
TAX CREDIT
$3,380,000
$2,203,200
$1,176,800
$9,257 36
$257
Savings $416