Speakers Discuss Newer, Slightly Simpler Affordable Housing Tax Programs

Chris Gaetano
Published Date:
Nov 15, 2017
Accounting and auditing for affordable housing programs has gotten easier this year, according to speakers at the Foundation for Accounting Education's Real Estate Conference on Nov. 14.

Speaking at Baruch College, Christina Duran, the Executive Director of Low Income Housing Tax Credit Allocations with the NYC Department of Housing Preservation and Development, said that the city's 421-A program has been revised to make it simpler for applicants to follow and for the city to administer, though she noted that there are still many nuances. 

"It's a lot simpler than the old 421-A, ... but simplicity is relative, let's put it at that," she said. 

The new 421-A program, which was approved by the state legislature in April, is, like its other iterations, a tax incentive for the construction of affordable housing in the city. Rental units that apply and are approved for the program are subject to rent restrictions, which are administered either by the state government or through a city agency that finances affordable housing, such as the HPD. Once the application meets all eligibility requirements, the HPD issues a certificate that is then filed with the city Department of Fiance, which would then implement the benefit (though Duran noted that the the department might not do so if the property has other arrears). 

Under the new regulations, projects must commence between January 2016 and June 2022 and must be completed no later than June 15, 2026. In order to qualify for the program, the building must have a minimum of six dwelling units (she noted that it was previously three, then later increased to four). Unlike previous versions, under which the property owner applied for the program after construction started and then again after completion, the new program just requires that an application be filed within one year of completion. Once it is approved, the benefits are applied retroactively. 

"It greatly simplifies the administrative burden of the program on us, though the developer may have to put up taxes during  construction and the Department of Finance will do a refund or put on the benefit retroactively," she said. 

Unlike the old program, the new 421-A program also mandates that buildings have a common entrance and common areas, a requirement put in response to news that certain buildings were forcing affordable housing tenants to use separate doors than market-rate tenants. The current program also requires an equitable distribution of the affordable units, meaning the owner cannot just stash them all in the basement. Also, they must all be marketed through the HPD's Housing Connect program at both the initial and all subsequent rentals. 

Property owners can select from several different variants of the 421-A program based on their economic needs and circumstances, and each coming with restrictions. For example, one variant allows an owner to participate in the program provided the owner designates 25 percent of the building's units as income restricted, and the owner cannot use any other government assistance save tax credits or tax exempt bonds. In another, individual tenants don't need income criteria, but the projects must be located outside Manhattan and contain no more than 35 units; the average assessed value for all the units cannot exceed $65,000 upon the first assessment following the completion date; and each owner must agree in writing to maintain the unit as their primary residence for no less than five years from the date of acquisition. Other programs are specifically for very large projects with 300 or more units that apply varying criteria for construction wages, building workers, and location.

Elaine Toribio, the Director of Tax Incentive Programs at the NYC Department of Housing Preservation and Development, also talked about the federal affordable housing subsidy program, the largest of such programs in the country and the fourth largest tax line item in the federal budget. The rules for the credit itself are laid out by the IRS in Section 42 of the tax code, she said. 

The program authorizes a certain amount of tax credits per capita, which are then sold to investors in exchange for equity needed to build the buildings. She explained that New York is one of the few municipalities that directly administers the credit, though said the city reports to the state, which then reports to the federal government. The 9 percent credit is allocated on an annual basis, and the 4 percent credit is allocated on a rolling basis. The busiest times for applications tends to be June and December. 

Finally, the session also featured NYSSCPA Peer Review Committee Member Grace G. Singer, who talked about changes to the city's J-51 program, which previously required that a CPA sign a report that was not in compliance with Generally Accepted Auditing Standards. The new program uses an Agreed Upon Procedures report, allowing CPAs to serve their clients while still complying with peer review regulations. 

The Trusted Professional will soon be releasing a story going into the new program in more detail.

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