Tax Strategies for Rural Affordable Housing Preservation

The Housing Assistance Council released “Tax Considerations for Rural Housing Preservation,” which outlines strategies for avoiding adverse tax consequences that can prevent the preservation of rural affordable housing at the time of a sale. The paper suggests that changes in tax law, such as limiting depreciation recapture and tax liability at the time of a sale or providing tax credits for those who sell properties for the purpose of preservation, might ease efforts to preserve affordable rural rental housing.

Owners of USDA Section 515 developments may reduce their tax liability over time by claiming depreciation on the properties, but the government recaptures a portion of those deferred taxes when the property is sold. If the property has not appreciated in value, that tax liability may discourage the sale of such properties, which is a potential threat to their preservation as affordable rental housing. The report draws on Internal Revenue Service publications, congressional committee testimony, and interviews with tax attorneys and USDA officials familiar with preservation transactions. It explains how tax liabilities can arise on the sale of a property through depreciation recapture and debt forgiveness. The authors discuss potential tax strategies and tax relief options that could facilitate the sale of Section 515 properties for preservation.

The full paper can be accessed at: