Qualifying for Additional Low-Income Housing Tax Credits

Q I'm developing an affordable housing site, and I've just received an allocation of tax credits. I'm wondering if there's anything I can do to qualify for more tax credits down the road?

A There are limited scenarios in which a developer that, having obtained a tax credit allocation, may seek additional tax credits. First, a developer may have leased more units to low-income residents than was originally intended or expected, and the state may make additional credits available to that developer in the following year. Second, a developer that had applied for more tax credits than the state had been willing to provide in that year might hold off doing the deal during that year, seeking to have the state earmark tax credits for the project in the following year.

The practice of earmarking tax credits is known in the industry as “a forward allocation,” by which a developer will reapply in the following year for credits, knowing that the required amount will be made available at that time by the state allocating agency.

However, the effort to obtain additional tax credits after they have been allocated by the state is rarely seen in practice. That's because unless a developer gets the amount of tax credits needed to do the deal, the deal normally just won't get done.

Basically, developers must work on the difference between the cost of a housing project and the amount of money that's required to service the debt incurred in completing the project. Usually, a gap exists between the two. Tax credits are necessary to close the gap. Sometimes tax credits are insufficient to finance a project, and a developer will have to seek grants or “soft” loans (money borrowed at an exceptionally low rate of interest or on terms beneficial to the owner, or through funding from other government programs).

Insider Source

A.J. Johnson: A.J. Johnson Consulting Services, Inc., 3521 Frances Berkeley, Williamsburg, VA 23188 (757) 259-9920; ajjohn@cox.net.