Tips for LIHTC Acquisition Rehabs
Useful Tips Regarding LIHTC Acquisition Rehabilitations
Acquisition Rehabilitations under the LIHTC program present a number of unique challenges for owners and site managers. Under an acquisition rehab, a building may be purchased with existing residents who are then qualified in-place, as of the date of acquisition/purchase. We have compiled a few answers to questions you may have throughout this process.
Household Certifications and Applications
Q. How do I certify in-place residents?
A. Residents are certified in a manner similar to Annual Recertifications. They must be notified, questionnaires must be completed, and income (and applicable assets) must be 3rd party verified. As with recertifications, everything must be completed within 120 days of the effective date (your acquisition date). This includes the TIC, verification forms, 3rd party documentation, and resident/management signature dates. However, for acquisitions, paperwork may fall before or after the acquisition date, as long as everything has been completed within 120 days. Do not backdate any verifications or signatures. Your compliance auditor will be aware of acquisition mechanics.
Q. What if I don’t certify a resident in time?
A. Occasionally, a resident’s certification will not be completed within 120 days of the acquisition. When this happens, the resident is no longer entitled to safe harbor protection, and the Initial Certification date on the TIC will simply become the date the file was completed (rather than the acquisition date). Similarly, for new residents, the effective date will simply be the move-in date.
Q. What if I find out a resident does not qualify?
A. If in the process of certifying, you find that a resident is not LIHTC qualified, his/her unit becomes non-qualified. The unit can only begin to qualify for credits once the existing resident moves out and an eligible household moves in.
Acquisition-Rehab Effects on Project Compliance
Q. Which income and rent limits should I use when determining if an applicant or in-place resident is eligible?
A. Income and rent limits are based on your PISD (placed-in-service date), which is set at the date of acquisition. For example, if the property was officially acquired on 10/1/2016, you will use income limits current as of 10/1/2016 to qualify your residents. Rent limits are set by the owner, no later than the PISD. The owner may choose to elect either the date of allocation or the PISD as the date the gross rent floor is effective.
Q. What is the Safe Harbor Rule?
A. When a resident is certified and income-qualified as of the acquisition date, the unit is considered qualified under the safe harbor rule. This protects the resident and management in the event that the household’s income goes up after an extended rehab process before credits can be claimed. (Note: This rule only applies to income, not student status.) If credits will be claimed in the year following the initial income eligibility determination, a self-certification from the resident stating there have been no changes to income may be required, along with a new Student Status Certification.
Q. When can I claim credits on a unit?
A. You may not claim full credits until rehab is complete. A rehab is considered complete once minimum expenditures have been met (20% of the adjusted basis, or $6700 per low-income unit). A unit counts as qualified when: The building has been in service for a full month, and the unit in question has been leased to a qualified household as of the last day of the month.
The above Q&A provides basic information for qualifying tenants and applicants for an acquisition rehab. Occasionally, you may be presented with a more challenging file. For questions that are more complex than what we have provided, we recommend that you consult with your investor or auditing agency or consider hiring us to do more research on your behalf