HOME and LIHTC Long-Term Affordability

While PJs are concerned with maintaining decent, safe, and affordable housing in their communities for low-income families, investors in LIHTC projects are interested in receiving a fair financial return on their investment. The development of affordable multifamily housing usually meets the objectives of both parties for a number of years. However, when the LIHTC tax benefits and their related use restrictions expire, a sale of the property may occur and it may become a challenge for the PJ to preserve affordability and enforce the HOME affordability restrictions.

It is important for PJ staff to understand the implications of the expiring LIHTC compliance period on the project, especially when the HOME affordability period is for more than the 15-year LIHTC compliance period. (This is true for many HOME and LIHTC new construction projects, where the HOME affordability period is a minimum of 20 years—five years beyond the expiration of the 15-year initial compliance period of the LIHTC.

HOME Affordability Period

The HOME Program requires PJs to impose affordability restrictions for an affordability period that remains in place without regard to any other requirements of other lenders or programs. With the exception of new construction, a 5- to 15-year minimum affordability period is based on the amount of per unit of HOME investment, as shown in Exhibit 5-1 in Chapter 5. For new construction, a minimum period of 20 years is required. During this affordability period, the compliance requirements discussed in Chapter 5 apply. As previously noted, the PJ can impose longer term affordability periods.

The HOME affordability restrictions are enforced through the use of a deed restriction or restrictive covenant that runs with the land and is recorded in the appropriate jurisdiction (discussed in Chapter 3).

LIHTC Compliance and Extended Use Period

The LIHTC Program requires the investor to hold the LIHTC investment for 15 years, during which time the investor’s tax credits are subject to credit recapture by the IRS.

After 1989, the Internal Revenue Code (IRC, or the Code) requires an extension of the use restriction on the property that expires the later of 15 years after the tax credit compliance period ends or a date specified by the state. This is referred to as the extended use period. However, the Code also permits the investors to exit the project at that point, raising the possibility that ownership and financing may need to be restructured.

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