year 15 documentation issues michael kotin kay-kay realty corp. 2007

Year 15 Documentation Issues

Michael KotinKay-Kay Realty Corp.

2007

Understand the Parameters


Recap of Critical Documents:



Its still Real Estate



Its still Real Estate

Don’t let the tax tail wag the economic dog



Seller’s Partnership Structure



Seller’s Partnership Structure LP Splits Ultimate Tax Credit Investor



Seller’s Partnership Structure LP Splits Ultimate Tax Credit Investor

It’s a small world.



Land Use Restriction Agreement



Land Use Restriction Agreement Extended Use provisions continue May restrict or define Target Population May restrict or define Income Limits



Land Use Restriction Agreement

Example: LURA provides 100% income restriction at 50% incomes. New contemplated tax credit structure at “40/60” will not supercede 50% income limitation

Transfers with Credits Remaining

As it pertains to Compliance three areas:


As it pertains to Compliance three areas:

First Year Files

Current Files

State Housing Agency


First Year Files

Tenant Files8609s8609AsLURA


Current Files

Tenant Files

Back to initial qualification

Utility Allowances


State Agency:

Last annual report

Open compliance issues

Non-corrected 8823s

Year 15 Transfers

Don’t Need:

Year 15 Transfers

Don’t Need:

Initial Tenant Files

Year 15 Transfers

Don’t Need:

Initial Tenant Files Resolution of 8823s

Year 15 Transfers

Don’t Need:

Initial Tenant Files Resolution of 8823s Annual Reports

Year 15 Transfers

Don’t Need:

Initial Tenant Files Resolution of 8823s Annual Reports

Why?No credits to lose !!

Only ongoing requirement is in LURA

Year 15 Transfers

Do Need:

Current Tenant Files LURA

Key Dates

Key Dates

Tenant Qualification as of Transfer Date

NOT Tenant Qualification as of Tenant Move-in Date

NOT Tenant Qualification as of last Recertification Date

Key Dates

Last Certification date can be use to ESTIMATE Qualified Occupancy

Does not actual determine Qualified Status.

Key Dates



2007 is year 15. Tenant is Qualified at

May-07 move-in. Property purchased

Jan-08.

Key Dates



2007 is year 15. Tenant is Qualified at May-

07 move-in. Property purchased Jan-08.

May-07 irrelevant Status at Jan-08 relevant May-07 qualification does

not “warm body” unit for new owner

Key Dates

Critical factor is whether Tenant is Qualified as of Transfer Date.

Key Dates


May wish to obtain “Interim Certification” do better estimate qualified percentage.

Key Dates



Application and verifications may be obtained in advance of transfer.

Key Dates




TIC must be certified to new owner.

Key Dates




TIC must be certified to new owner.

Doesn’t matter if same management company.

Tenant Qualification


Three Possibilities

1. Tenant income is below move-in limits


Three Possibilities


2. Tenant income is above 140% recertification limits


Three Possibilities


2. Tenant income is above 140% recertification limits

3. Tenant income is above move-in limits but below 140% recertification limits


Tenant income is below move-in limits:



1. May income qualify existing resident as initial “warm body” tenant for new tax credits.




2. Application and verification may be completed before transfer date but certification must be to new owners after transfer date.





3. May retroactively complete qualification after transfer within first 120 days of ownership.





3. May retroactively complete qualification after transfer within first 120 days of ownership.

4. Existing lease may transfer and does not need to be rewritten.



5. 6 month non-transient safe harbor rule does not apply.


Tenant income is above 140% of applicable move-in limit:



1. Unit is no longer technically a tax credit unit.




» Prohibition against no-cause evictions do not apply.




» Prohibition against no-cause evictions do not apply.

» 3-year trailer for rent protection does not apply.



2. Tenant may be non-renewed at lease expiration




» Does not override protection offered by state and local ordinances which may apply.




» Does not override protection offered by state and local ordinances which may apply.

» Does not override protection offered to project-based or voucher-based Section 8 tenants.



3. Credits may commence after existing Tenant is gone and a new qualified household occupies the unit.


Tenant income is above move-in limits but under 140% of applicable move-in limit:



1. This is the problem scenario.



1. This is the problem scenario.

2. Still considered a tax credit unit.

» Prohibition against no-cause evictions do apply.

» 3-year trailer for rent protection does apply.



3. Qualification at move-in with old ownership does NOT “grandfather” qualified status to resident.



Options:

Treat unit as a market rate unit and forego any credits on the unit.



Options:


Treat unit as a non-qualified tax credit unit. A undetermined amount of tax credits will flow in subsequent years (possibly as 15 year credits) when the unit is actually occupied by a qualified household.

» Requires special treatment in LP Agreement



Options:


Treat unit as a non-qualified tax credit unit. A undetermined amount of tax credits will flow in subsequent years (possibly as 15 year credits) when the unit is actually occupied by a qualified household.

» Requires special treatment in LP Agreement

Buy the tenant out.

Interim

Interim

Extended Use Agreement still applies.

Interim


Most states require continued documentation at initial occupancy.

Interim



Recertification is not required in most states after 15-year initial compliance period.

Interim




3-year rent protection trailer continues for all qualified residents in possession at end of initial credit period.

Interim





Prohibition against no-cause evictions still applies for all qualified residents in possession at end of intitial credit period.

Interim

If property will not be placed-in-service in year of acquisition:

Interim



Interim





Prohibition against no-cause evictions still applies for all qualified residents in possession at end of intitial credit period.

Interim


Interim


New residents should be income qualified at move-in.

Interim



“Grandfathering” rules will apply at January 1st of P-I-S year pursuant to 2003-82.

Interim



“Grandfathering” rules will apply at January 1st of P-I-S year pursuant to 2003-82.

Current and new residents who vacate prior to January 1st of P-I-S year do not “warm body” the unit.