As part of its FY12 budget request, the Department of the Treasury seeks two changes to the low income housing tax credit (LIHTC) program. One would allow “income averaging” so properties could serve higher income tenants than is currently allowed if they also house lower income tenants. The other proposal would provide an increase in a LIHTC property’s eligible basis (the amount of tax credits a property can receive) if it meets certain criteria aimed at preserving federally-assisted low income housing.
To qualify for the LIHTC program, owners must comply with one of the two existing income targeting requirements: at least 20% of units must be rent-restricted and occupied by tenants with income at or below 50% of area median; or, at least 40% of units must be rent-restricted and occupied by tenants with income at or below 60% of area median income. The White House’s FY12 proposal would add a third option for owners to meet the program’s income targeting requirements: at least 40% of the units would have to be occupied by tenants with incomes that average no more than 60% of area median.
This proposal would allow LIHTC units to serve tenants with incomes up to 80% of AMI. For the purpose of calculating the average, any unit with an income that is less than 20% of AMI would be treated as having an income at 20% of AMI.
Treasury FY12 budget documents describe the proposal as one that will help the LIHTC incentivize mixed-income housing, and will help the program serve those most in need.
The other LIHTC change would allow for a basis boost of 30% for LIHTC properties that meet each of the following criteria:
- The project involves the preservation, recapitalization, and rehabilitation of existing housing;
- The housing demonstrates a serious backlog of capital needs or deferred maintenance;
- At least half of the aggregate basis of the building and of the land on which the building is located is financed by tax-exempt bonds that are subject to the volume cap;
- The project involves housing that was previously financed with Federal funds (including having benefited from LIHTC); and
- Because of that funding, the housing was subject to a long-term use agreement limiting occupancy to low-income households.
HUD Secretary Shaun Donovan, at the February 14 briefing on the HUD FY12 budget request, said that the basis boost would make public housing more broadly eligible for housing tax credits.
The Department of Treasury’s FY12 budget request can be found at http://www.treasury.gov/resource-center/tax-policy/Documents/Final%20Greenbook%20Feb%202012.pdf. See pp. 22 to 24 for specific descriptions of these two LIHTC proposals.