Low Income Housing Tax Credits & Preservation in Tennessee, 2018

The 2018 Tennessee QAP incentivizes preservation

Set Asides

Preservation Set-Aside a. No more than twenty-two and one half percent (22.50%) of the sum of Part III-A-1, -2, and -3 will be set aside for developments involving preservation

Point Incentives

Out of a maximum 25 possible points in the Development Characteristics section, Preservation/Rehabilitation projects are incentivized in the following way in the 2018 QAP:

(i)                  Developments involving substantial preservation or rehabilitation must be rehabilitated so that, upon completion of all rehabilitation as described in the Physical Needs Assessment, the major building components and systems will not require further substantial rehabilitation for a period of at least fifteen (15) years from the required placed in service date. Major building components and systems are roof structures, wall structures, floor structures, foundations, plumbing systems, central heating and air conditioning systems, electrical systems, interior and exterior doors, windows, parking lots, elevators, and fire/safety systems. Rehabilitation hard costs must be no less than the greater of thirty percent (30%) of building acquisition costs or eleven thousand dollars ($11,000) per unit. An architect’s certification will be required with the Carryover Allocation Application and prior to issuing the IRS Form 8609: 13 points

(ii)                Developments involving moderate preservation or rehabilitation must be rehabilitated so that, upon completion of all rehabilitation, rehabilitation hard costs must be no less than the greater of twenty-five percent (25%) of building acquisition cost or seven thousand dollars ($7,000) per unit. The rehabilitation scope of work must include, at a minimum, all appliances in all units being Energy-Star compliant (this requirement does not apply to ovens, ranges, or microwaves), and all work specified in the Physical Needs Assessment with THDA LIHTC 2018 QAP Page 24 of 51 regard to drywall, carpet, tile, interior and exterior paint, the electrical system, heating and air conditioning systems, roof, windows, interior and exterior doors, stairwells, handrails, and mailboxes. An architect’s certification will be required with the Carryover Allocation Application and prior to issuing the IRS Form 8609: 8 points

(iii)              Developments involving limited preservation or rehabilitation must be rehabilitated so that, upon completion of all rehabilitation, rehabilitation hard costs must be no less than the greater of twenty percent (20%) of building acquisition cost or six thousand dollars ($6,000) per unit. The rehabilitation scope of work must include, at a minimum, all work specified in the Physical Needs Assessment with regard to interior and exterior common areas, interior and exterior painting and/or power washing, gutters, parking areas, sidewalks, fencing, landscaping, and mailboxes. An architect’s certification will be required with the Carryover Allocation Application and prior to issuing the IRS Form 8609: 3 points

(iv)              All rehabilitation expenditures must satisfy the requirements of Section 42(e)(3)(A)(ii) of the Code

(v)                All rehabilitation work associated with costs reflected in the Initial Application must be fully completed no later than the required Tax Credit placed in service date.

(vi)               Developments involving the use of existing housing as part of a community revitalization plan as certified, in the form of Attachment 13, executed by the City Mayor or City Attorney if the development is located within the applicable city limits, or the County Mayor or County Attorney if the development is located within the relevant county but is outside city limits. For developments which are located in a city without a community revitalization plan, but are covered by the relevant county revitalization plan, the County Mayor or County Attorney may sign the Attachment 13, but the City Mayor or City Attorney must sign the acknowledgement of said situation at the bottom of Attachment 13: 1 point

Thresholds

The following details minimum threshold requirements for projects within three of the set-aside categories.

Preservation Set-Aside: The Initial Application must propose preservation of a development with existing income and rent restrictions through programs such as the Low-Income Housing Tax Credit, Multifamily Tax-Exempt Bonds, or programs administered by USDA or HUD. The Initial Application must include documentation, acceptable to THDA, in its sole discretion, verifying the existing income and rent restrictions. A minimum of 90% of the units in the development must be subject to the existing income and rent restrictions. Following rehabilitation, 100% of the units subject to the existing income and rent restrictions must continue to be income and rent restricted.

QCT/CRP Set-Aside: The Initial Application must propose a development located completely and entirely in a Qualified Census Tract (identified on Exhibit 4, excluding Difficult to Develop Areas), the development of which contributes to an approved concerted community revitalization plan, as certified in the form of Attachment 13 executed by the City Mayor or City Attorney if the development is located within the applicable city limits, or the County Mayor or County Attorney if the development is located within the relevant county but is outside all city limits. For developments which are located in a city without a community revitalization plan, but are covered by the relevant county revitalization plan, the County Mayor or County Attorney may sign the Attachment 13, but the City Mayor or City Attorney must sign the acknowledgement of said situation at the bottom of Attachment 13.

Rural Set-Aside: The Initial Application must propose a development located completely and entirely in a county listed as “Rural” in Exhibit 1.

Extended-Use/ Y15, qualified contract

Tennessee’s 2018 QAP provides point incentives for projects that provide commitment to offer tenant option to purchase after the first 15-year period OR commit to deferring the request to find a buyer for the property following it’s 14th active year. Project can earn 7 points by waiving their right to a qualified contract, and can earn up to 5 points by`` deferring the written request specified in Section 42(h)(6)(I), according to the following schedule:

Number of Years

Points

Waive ability to submit Opt Out Request

7 points

At least 5 years

5 points

At least 4 years, but less than 5 years

4 points

At least 3 years, but less than 4 years

3 point

 

Alternatively, projects pursuing Eventual Tenant Ownership earn 1 point by offering a binding commitment to offer the tenant of a single-family building at the end of the fifteen-year tax credit compliance period a right of first refusal to purchase the property. The owner must provide to THDA a detailed plan with the Initial Application, specifically including how the owner will set aside a portion of the rent beginning in year two (2) of the compliance period to provide sufficient funds to the tenant at the end of the compliance period for the down payment and the closing costs to purchase the unit. The plan will be required to be updated and submitted to THDA again for approval in year 13 of the compliance period. The Restrictive Covenant Agreement will contain provisions ensuring enforcement of this provision.

Basis-boost

A proposed development may receive, in THDA’s sole discretion, an increase in eligible basis of up to 30%. The provisions of Part III-C-1-c, Part III-C-1-d, Part III-C-1-e, Part III-C-1-f, and Part III-C-1-g do not apply to proposed developments with tax-exempt financing as described in Section 42(h)(4).

The following types of developments are eligible for the increase in eligible basis:

·         Developments wholly located within a HUD-designated QCT; or

·         Developments qualified for the Rural Set-Aside; or

·         Developments wholly located within a HUD-designated Difficult Development Area; or

·         Developments that have a Choice Neighborhoods Initiative (“CNI”) Implementation Grant; or

·         Developments that have a Rental Assistance Demonstration (“RAD”) Commitment to Enter into a Housing Assistance Payments Contract.

·         Developments receiving an allocation from the Innovation Set-Aside; or

·         Developments wholly located in Sevier County.

Contributed By: 
National Housing Trust

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