The Consolidated Appropriations Act, 2021 includes tax provisions that support and encourage the development of affordable housing. A new minimum credit is provided to new or existing buildings that are not federally subsidized and placed in service after December 31, 2020. The State housing tax credit ceiling for calendar years 2021 and 2022 is increased for buildings located in any qualified disaster zone in the State.
In general, a taxpayer may claim a credit for each low-income unit rented in a qualified low-income housing project. A qualified low-income housing project is a housing project or residential rental property that is subject to modified accelerated cost recovery system (MACRS) depreciation and meets requirements for low-income tenant occupancy, gross rent restrictions, state credit authority, and IRS certification. The project must continue to meet these requirements for 15 years, or the taxpayer may have to recapture a portion of the credit.
Congress sets the limit on the amount of low-income housing tax credit allocated to the states each year. The state agencies then award the credit to qualified taxpayers. The credit is computed as an applicable percentage times the qualified basis of the low-income building.
New Minimum Credit
Unless the housing project is financed by tax-exempt bonds subject to the volume cap, the credit is limited to the amount that a state or local housing credit agency allocates. Due to the pandemic, the federal borrowing interest rates have fallen to historic lows in recent months thereby lowering the variable applicable percentage rate used to compute the credit. The Consolidated Appropriations Act, 2021 includes a new minimum credit of 4% for building placed in service after December 31, 2020. The new minimum credit is expected to encourage the development of additional affordable homes.
Qualified Disaster Zones
Temporary relief from certain low-income housing credit requirements is provided to owners of low-income housing and housing credit agencies of states or possessions of the United States for low-income housing located in a “major disaster area.” This relief:
- extends the time to comply with certain carryover allocation provisions;
- waives credit recapture that might otherwise result due to a reduction in qualified basis attributable to a casualty loss deduction;
- extends the deadline for agency compliance monitoring reviews;
- tolls the first-year credit period; and
- suspends the income certification requirements for low-income tenants who are temporarily housed as a result of the major disaster.
Under the Consolidated Appropriations Act, 2021, the State housing credit ceiling for any state is increased for calendar years 2021 and 2022 by an aggregate housing credit dollar amount that is allocated by the State housing credit agency for buildings located in any qualified disaster area. The term “qualified disaster area” is defined to include any area in which a major disaster was declared by the President under the Stafford Act beginning on January 1, 2020, and ending on February 25, 2021, 60 days after the date of enactment. “Qualified disaster area” does not include any area with respect to which a major disaster was declared only by reason of COVID-19.
Please call our office for more information on the low-income housing credit. We are here to assist you.