Both the LIHTC and the HOME Programs have periods after project completion, during which their respective program requirements apply to the assisted units in the property. During this period, requirements related to rent limits, tenant income limits, tenant lease protections, affirmative marketing, and property standards apply. This period is generally referred to as the affordability period under the HOME Program, and the compliance and extended use periods for the LIHTC Program.
For more information on managing HOME rental properties during the affordability period, see HUD’s publication Compliance in HOME Rental Projects: A Guide for PJs (HUD-2009 HOME Rental PJ, issued January 2009). This publication is available from the HOME Program website at http://www.hud.gov/homeprogram/.
Duration of the Affordability/Compliance Period
The HOME and LIHTC Programs determine the duration of the affordability/compliance period differently. Therefore, the duration of these periods are not necessarily the same for any given project, although they may be.
LIHTC Compliance and Extended Use Periods
Generally, the LIHTC program imposes a 30-year period during which LIHTC requirements apply. These 30 years are comprised of a 15-year compliance period and a subsequent 15-year extended use period. This distinction is the result of a change in the tax code in 1990 that amended the compliance period from 15 to 30 years. Note that the state allocating agency may make this period longer.
In practical terms, the LIHTC investor must stay in the project for 15 years (the compliance period). For the extended use period, the Code permits investors to “opt out” under certain conditions. Although the state allocating agency continues to monitor compliance during the extended use period, there may be no tax implications in the event of noncompliance.
HOME Affordability Period
The minimum duration of the affordability period for the HOME Program is based on the per unit amount of the HOME investment in the project and the nature of the activity funded, as summarized in Exhibit 5-1.
Exhibit 5-1: HOME Period of Affordability for Rental Housing
Compliance Period When HOME and LIHTC Are Combined
When HOME and LIHTC are combined in a property, the property has to comply with the requirements for each program for the duration of that program’s affordability/compliance period. For the time during which these periods overlap, the property must satisfy both sets of requirements. It generally does this by adhering to the most restrictive requirement in any given circumstance.
PJs should be especially aware of the compliance periods for new construction projects. New construction triggers a minimum 20-year compliance period under HOME, while investors may be looking to “exit” the project after the 15-year compliance period of LIHTC. Under normal circumstances, a succeeding owner takes over the responsibilities and continues affordability compliance, but PJs may need to work to ensure that this happens when a buyout occurs. See Chapter 6 for additional discussion on this issue.
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