Article | Reduce, Reuse, Resyndicate | Part 3
Oct 05, 2022
As many tax credit properties age, the option presents itself to plan an 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 6 | What income limits apply to the “grandfathered” residents? How about new move-ins?
Answer | Since grandfathered households continue to qualify based on their original certification, income limits at the time of the start of new credits are not fundamentally relevant to their status with the new credits. Of course, if a household is being certified under current limits as suggested in the answer to the last article, then current limits will be used. Households who move in after acquisition will also be held to the current income limits (see questions below for further information on current limits).
Question 7 | What rent restrictions are in place for the “grandfathered” residents? How about new move-ins?
Answer | Resyndication establishes a new placed in service date for the second set of credits (the date of acquisition for the new credits). For BOTH residents who are in place at acquisition and who move in afterwards, the rent restrictions will be calculated based on the current income limits applicable to the property, or the gross rent floor in place with the second allocation, whichever is higher. Income limits will hold harmless from the new placed in service date on, as with all tax credits.
Note: households in place as of the date of acquisition may automatically income-qualify for the new credits, but their rent may not be correct and will need to be adjusted to be eligible for tax credits at the date of acquisition, as discussed below. This is true even if the first year of the credit period will be a later year than the year of acquisition.
Note: households in place as of the date of acquisition may automatically income-qualify for the new credits, but their rent may not be correct and will need to be adjusted to be eligible for tax credits at the date of acquisition, as discussed below. This is true even if the first year of the credit period will be a later year than the year of acquisition.
References: Rev Proc 2003-82 Section 4 (.01 (3))
IRS LIHC Newsletter #47, page 2, Q 3 & 4
(and correction noted in Newsletter #48, page 5).
Question 8 | Income and rent limits for my first set of credits have held harmless in past years, so they are higher than the current limits. Do I need to drop my rents based on current limits?
Answer | Yes. This is CRUCIAL to understand, as compliance with the rent rules is vital to claiming tax credits. Since limits are held harmless starting when a project places in service, and the new set of credits place in service at the new acquisition date, an owner cannot rely on income limits that are held harmless to a past year. They must start with the current published limits in effect as of acquisition.
References: Rev Proc 2003-82 Section 4 (.01 (3))
IRS LIHC Newsletters #35, page 4, Q12 and #47, page 2, Q 3 & 4
Question 9 | My first set of credits are using HERA Special limits. Can I use these for my new credits?
Answer No. HERA Special limits are an option for projects that were in placed in service in 2008 or earlier. Since the new credits establish a new placed in service date that is after 2008, HERA Special limits and rents are no longer an option.
References: IRS LIHC Newsletters #35, page 4, Q12 and #47, page 2, Q 3 & 4
Up Next: Are full-time students "grandfathered" into the new credits?
Up Next: Are full-time students "grandfathered" into the new credits?
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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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