Novogradac LIHTC Working Group Comments on Cost Recovery Reform Proposal

San Francisco, CA (PRWEB) January 17, 2014

Members of the LIHTC Working Group on Jan. 15, 2014 sent a letter to Senate Finance Committee Chairman Max Baucus, D-Mont., regarding his recently released cost recovery and tax accounting discussion draft, which was published as part of the ongoing efforts in Congress to pursue comprehensive tax reform. The discussion draft, among other things, proposes moving to an alternative depreciation system under which property is depreciated over longer periods, which the LIHTC Working Group warns would have a negative effect on low-income housing tax credit (LIHTC) investor yields, investor equity pricing and the amount of equity raised for the development and preservation of affordable rental housing.

“Novogradac & Company’s analysis of the discussion draft determined that the proposed depreciation changes would reduce LIHTC investor yields by as much as 20 percent and LIHTC pricing by as much as 9 percent for future developments. Such an adverse impact would lead to a potential loss of LIHTC equity more than $1 billion,” said Stacey Stewart, CPA, a partner in Novogradac & Company LLP’s Dover, Ohio office who leads the LIHTC Working Group’s efforts.

This analysis builds on earlier research Novogradac conducted to gauge the effect of lengthening rental residential real estate depreciation. The findings, reported in “Affordable Rental Housing after Tax Reform: Calculating Corporate Tax Reform’s Possible Effects on Equity Raised from Low-Income Housing Tax Credits,” indicate that for the LIHTC equity market as a whole, there could be a potential annual loss of $220 million to nearly $1 billion dollars, or more, in equity used to finance affordable rental housing.

The LIHTC Working Group also warns strongly against the discussion draft’s proposed retroactive change to depreciation. Such a change would affect millions of existing LIHTC-financed affordable apartments as well as future developments, further damaging the ability to finance LIHTC properties. Novogradac’s analysis found for existing affordable rental housing properties, which were underwritten and financed assuming the current law depreciation rates, investor yields would be reduced by as much as 9 percent and equivalent pricing by 3 percent.

“Affordable rental housing advocates are already concerned about the adverse effects the possible future reduction in the top corporate tax rate is having and would have on multifamily affordable housing finance. The mere discussion of retroactive changes in depreciation lives and methods is even more chilling. As such, we strongly urge the committee not to make any retroactive changes to tax lives and methods, particularly for transactions where Congress created a targeted tax incentive to encourage tax-motivated investment,” said Michael J. Novogradac, CPA, managing partner in the firm’s San Francisco office and the LIHTC Working Group’s adviser on industry and governmental affairs.

For details and a copy of the letter, please go to http://www.lihtcworkinggroup.com. The LIHTC Working Group was established by Novogradac & Company LLP in 2008 to provide a platform for LIHTC industry participants to work together to resolve technical and administrative LIHTC program issues. Members meet monthly via conference call to provide input regarding pending action items as agreed to by the members of the group. Comments and suggestions generated during the group discussions are agreed to and submitted in writing directly to Treasury, the Department of Housing and Urban Development and/or various state agencies. For more information, visit http://www.lihtcworkinggroup.com or email lwg(at)novoco(dot)com.

Novogradac & Company LLP was founded in 1989, and has since grown to more than 400 employees and partners in offices in San Francisco and Long Beach, Calif.; the Washington, D.C., Atlanta, Ga., Detroit, Mich., Kansas City, Mo. and Seattle, Wash. metro areas; St. Louis, Mo.; Boston, Mass.; Austin, Texas; Dover, Columbus and Cleveland, Ohio; New York, N.Y. and Portland, Ore. Specialty practice areas include tax, audit and consulting services for tax-credit-assisted multifamily and affordable housing, community revitalization and rehabilitation of historic properties. Other areas of expertise include military base redevelopment, preparation and analysis of market studies and appraisals of multifamily housing investments and renewable energy tax credits.

PDF Print