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.
Part 1: Introduction
Part 2: Qualifying Households
Part 3: Income Limits and Rents
Part 4: Students
Part 5: The Available Unit Rule
Question: 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 (likely changing ownership) and getting new credits based on how much they spend on the acquisition/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.”
Simplest answer: “When a property gets tax credits again.”
Question: 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mistake is to assume that the requirements of the first agreement (such as deeper state income limits) end or are superseded by the new agreement, or that state agencies are responsible for reconciling the two agreements.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).
References: §42(h)(6) and 8823 Guide Chapter 16
Question: Will my building change its Building Identification Number (BIN) when it has resyndicated credits?
Answer: No. The BIN assigned for the first allocation will continue to be used for all subsequent allocations.
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!