Affordable housing can be privately-owned units or public housing that are offered to low-income tenants or to the elderly and those with disabilities. Every state offers public housing units and most tenants pay approximately 30 percent of their income for rent and utilities. There are over 1 million public housing units managed by over 3,000 housing authorities. A few states offer low-income housing credits to ensure that housing options are available.
Arkansas provides a low-income housing credit based on the federal low-income housing credit for owners of qualified projects located in the state. Taxpayers must own an interest in a qualified project and obtain an eligibility statement from the Arkansas Development Finance Authority. The credit is 20 percent of the federal low-income housing, up to $250,000 or the income or annual premium tax otherwise due in any taxable year. Recapture provisions apply if the taxpayer is required to recapture a portion of the federal low-income housing credit.
California offers a credit for low-income housing based on the 1992 federal provision for low-income housing credits, with some modifications. The California Tax Credit Allocation Committee authorizes the credit based on the project's need for the credit for economic feasibility. Owners of residential rental projects providing low-income housing in California are eligible for the credit. However, the project must be located in-state, and either it must qualify for I.R.C. § 42 credits or the project's housing sponsor must have been allocated a credit by the committee for federal income tax purposes.
A qualified low-income housing project is a project for residential rental property if: (1) 20 percent or more of the residential units are rent restricted and occupied by individuals whose income is 50 percent or less of the area’s median gross income; or (2) 40 percent or more of the units are rent-restricted and occupied by individuals whose income is 60 percent or less of the area median gross income.
Taxpayers who own low-income housing in the District that follows the federal provision for low-income housing credits as it is in effect for the year the tax credit is claimed are eligible for the D.C. low-income housing credit. The amount of the credit allocated to a qualified project is based on the project's need for the credit for economic feasibility. If a portion of any federal low-income housing tax credits taken on a low-income qualified project is required to be recaptured, the District of Columbia low-income housing tax will also be recaptured. For taxable years after 2016, the aggregate credit limit is equal to the amount of federal credits allocated to the District.
The credit follows the provisions of the federal low-income housing credit, except that the state housing credit ceiling equals zero for the calendar year immediately following the expiration of the federal low-income housing tax credit program and for all subsequent calendar years. Upon approval by the Hawaii Housing Finance and Development Corporation, applicants must deposit an amount equal to 10 percent of the reserved amount. When the applicant receives the federal tax credits, the amount deposited will be refunded, minus an administrative fee.
The credit is nonrefundable, but unused credits may be carried forward until exhausted. This credit may be claimed whether or not the taxpayer claims the federal low-income housing credit, but taxpayers must receive a federal credit reservation in order to receive a state credit reservation.
The Massachusetts Department of Housing and Community Development allocates low-income housing tax credits to qualified low-income housing projects.
The amount of credit available to allocate depends on the pool of available federal credits granted. A credit attributable to a qualified donation equals 50 percent of the value of donated property. The credit may be increased to 65 percent of the value of the donated property if deemed necessary.
For credits that are not attributable to a qualified donation, taxpayers claim the credit equally over a five-year period. However, for credits that are attributable to a qualified donation, taxpayers must claim the credit in the year that the qualifying donation was made.
This credit is transferable, and unused credits may be carried forward to any of the five subsequent tax years. Taxpayers must apply for this credit through the Executive Office of Housing and Economic Development.
Owners of residential rental buildings in low-income housing projects may be eligible for the low-income housing. The credit, assigned to particular buildings, is based on the existing federal low-income housing program and may be claimed for a 10-year credit period.
The amount of low-income housing credits is allocated based on what is necessary for the project to be financially feasible and for the building to be a viable low-income building throughout the 10-year credit period. The aggregate amount of credits that the housing commissioner may allocate is limited to $88 million as of April 1, 2018, $96 million as of April 1, 2019, and $104 million as of April 1, 2020. For tax years beginning on or after Jan. 1, 2019, the credit is transferrable. The credit is nonrefundable and may be carried forward until exhausted.
Continue the discussion on Bloomberg Tax’s State Tax Group on LinkedIn: Which states provide low-income housing tax credits?
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