Article | Reduce, Reuse, Resyndicate | Part 1
Aug 03, 2022
As many tax credit properties age, the option presents itself to plan a tax credit-funded acquisition and rehab. The new costs can become the basis for more tax credits. This series addresses some common questions that arise when credits are "resyndicated" in this way.
Series Outline
Part 1: Introduction
Part 2: Qualifying Households
Part 3: Income Limits and Rents
Part 4: Students
Part 5: The Available Unit Rule
Question 1 | What is a “resyndication”?
Answer | When an owner of a tax credit property finishes the 15-year compliance period, they have the option of rehabbing the property and getting new credits based on how much they spend on the acquisition and rehab. Since general partner/investor relationships are generally established through syndication of credits through syndicators, this process is often referred to as “resyndication”. The IRS often calls this a “subsequent allocation of credits.”
The simplest answer: “When a property gets tax credits again.”
Question 2 | Do extended use requirements for the first set of tax credits end with the new allocation of credits? Are they replaced by the new extended use agreement?
Answer | No. After the end of the compliance period, all tax credit properties allocated credits since 1990 are required to have an agreement in place to continue affordable housing restrictions for at least an additional 15 years beyond the end of the compliance period. This results in a total of at least a 30-year extended use agreement (15-year compliance period + 15(+) years after). The new credits will also have a new extended use agreement for at least 30 years, and it will start with the new credit period. In other words, the extended use periods will overlap by several years. A common mistake is to assume that the requirements of the first agreement (such as deeper state income limits) end or are superseded by the new agreement, or that state agencies are responsible for reconciling the two agreements. Unless you have explicit information from the state HFA to the contrary, it is best to assume that BOTH sets of requirements apply (Part 3 of this series will discuss state income and rent limits in greater detail).
Question 3 | Will my building change its Building Identification Number (BIN) when it has resyndicated credits?
Answer | Probably not. The IRS' instructions are that the BIN assigned for the first allocation will continue to be used for all subsequent allocations. Most - but not all - state LIHTC agencies follow these instructions, so check with your state to be sure.
Note: the first four characters in the BIN indicate the state where the property is located and the year of the first allocation. For example, a BIN SD-01-00001 is located in South Dakota and was allocated credits in 2001. This is useful at times when establishing which year-specific compliance rules are applicable to a property. For future allocations, the year of allocation of the new credits will not be indicated because the BIN is not changed. Other documentation, such as the application for tax credit allocation or forms 8609, will need to be used to determine the year of allocation.
References: Treas. Reg. 1.42-6(d)(2)(x), IRS LIHC Newsletter #45, page 1
Up Next: What do I do with households who do not qualify under current income limits at my resyndicated property? And more!
Check it out HERE! The above topic is just one of many to be discussed at this year's Compliance Summit Events. Online seats are still available.
There is a very good chance that the topic of this post is covered in an online on-demand course at Costello University.
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