The COVID-19 pandemic has highlighted the desperate need for more affordable housing more than ever before. This includes rising costs of construction, limited resources and a pandemic that has caused businesses to shut down or limit capacity. The affordable housing industry caught a break when President Biden signed the Consolidated Appropriations Act, 2021 on December 27, 2020, which included a provision to permanently fix the applicable percentage for tax exempt bond financed projects and acquisition projects to a minimum of 4% (4% floor).
The 4% floor applies to:
The 4% floor is effective for:
The 4% floor will provide affordable housing projects with:
Every project is different and negotiated under different terms, however, let’s look at the following scenarios before and after the 4% floor:
In this scenario the project generates $1,820,000 of additional tax credits over 10 years with the 4% floor, which would result in $1,638,000 of additional equity to finance the project.
There are many things to consider when reviewing your project and whether the 4% floor will apply to it. Things to consider are:
For additional considerations please reach out to Tom Johnson, CPA or contact our Real Estate Solutions Team at Mahoney.