Applicable Federal Rates for October 2022
Applicable Federal Rates for November 2022
St. Paul ARPA: Early November
Ramsey County ARPA: 10/31/2022
Met Council TBRA, DEED Contamination Cleanup, Hennepin ERF, Ramsey ERF: 11/1/2022
Carryover Application: 11/1/2022
Final CPA Certification: 5/1/21023
CPED/St. Paul PED:
Carryover Application: 1/1/2022
Final CPA Certification: 5/1/2023
Dakota County CDA:
Carryover Application: 10/17/2022
Final CPA Certification: 10/2/2023
Washington County CDA:
Carryover Application: 10/3/2022
Final CPA Certification: 5/1/2023
IRS Issued Final Regulations on the average-income set aside for low-income housing tax credit properties on October 7th, 2022. The main changes from the proposed regulations previously issued on October 30th, 2020, are providing more flexibility to reduce the “cliff risk” under which a project can fail to meet the set aside requirements and allowing unit redesignations based on a range of justifications. The final regulations provide clarity on the application of the next available unit rule and are generally evaluated as favorable changes for developers and investors considering using the set aside in a multi-family project.
IRS Issued Notice 2022-52 on October 7th, 2022, which provides relief for properties struggling to meet PIS deadlines to keep their tax credit allocation by extending the PIS deadline by up to 2 years depending on the year the credits were allocated. Additionally, the IRS notice provides relief for the casualty loss reasonable restoration period and other noncompliance correction periods, at the discretion of the LIHTC allocating agencies to limit the relief provided. The IRS notice also provides allocating agencies the flexibility to extend the waiver of physical inspections compliance monitoring to December 31st, 2023.
However, this IRS notice does not provide further extensions of the 10% test, the rehabilitation expenditure deadline, the lease-up period, or tenant file reviews. As a reminder, IRS Notice 2022-05 provides relief to units leased six months after the first year of the credit period to count in qualified basis for credit periods ending on or before December 31st, 2022.
US Congress passed the Inflation Reduction Act on August 16th, 2022. This Act provided extended, modified, and expanded energy incentives that may be utilized by residential homebuilders and multifamily developers. Below are links to a brief summary of the changes to the solar tax credit and Section 45L Credit.
The St Paul City Council in September voted to allow landlords to raise rents by 8 percent plus inflation if a tenant moves out in St Paul. They also added a 20-year exemption for new construction and exempted low-income housing. These changes walked back what was widely considered some of the most restrictive rent control ordinances in the country that were voted for and approved in 2021 in the City of St Paul. Those measures capped rent increases at 3 percent and did not provide an exemption for new construction or for when residents moved out. They also did not explicitly mention inflation as a valid reason for rent increases to exceed 3 percent.
The Minnesota Department of Revenue released 2022 “final” draft tax return forms in October. The changes from the 2021 tax return forms are minimal and reflect changes to federal nonconformity items. The Tax Position Disclosure form was introduced that needs to be completed if a position is being taken that lacks “substantial authority” but there is a “reasonable basis” for the position to be taken by the Taxpayer.
The budget reconciliation bill (Inflation Reduction Act) was signed into law on August 16, 2022. The Inflation Reduction Act is a $739 billion legislation package. It is only a portion of what was initially sought in the Build Back Better legislative proposals. However, it is still a significant tax, climate, and health care package which will fight inflation and produce a deficit reduction. There are no new taxes on families making less than $400,000 or small businesses.
Summary of some items from IRA that impact investments in real estate
The limitation on excess business losses was extended by two years which will now be effective for tax years 2021 through 2028. Excess business losses are applicable to noncorporate taxpayers. The threshold amount is $250,000 ($500,000 for joint return) and is adjusted for inflation.
Renewable electricity production tax credit and energy investment tax credit were extended and modified. The beginning-of-construction deadline for certain renewable electricity production facilities was extended through the end of 2024.
Energy investment tax credit was expanded to include certain qualified solar and wind facilities which is effective beginning in 2023. To qualify, a facility must have less than 5 megawatts maximum net output and must be in a low-income community or on American Indian land or part of such project.
Changes were made in the Section 179D tax credit for energy-efficient commercial buildings which may benefit business owners. Qualifying energy-efficient homes will provide higher tax breaks for home builders and developers.
Nonbusiness energy property credit was extended through 2032 and was modified. The credit was changed to 30% for both qualified energy efficiency improvements and residential energy property expenditures. The $500 lifetime limit was replaced with a $1,200 annual limit. These items generally apply to property placed in service after 2022.
Transfer of eligible credits. A taxpayer may elect to transfer all or a portion of an eligible credit to an unrelated eligible taxpayer. However, the recipient may not transfer any portion of the transferred credit. Eligible credits to transfer include the business credit portion of the alternative fuel vehicle refueling property credit, the renewable electricity production credit, the carbon oxide sequestration credit, the zero-emission nuclear power production credit, the clean hydrogen production credit, the advanced manufacturing production credit, the clean electricity and fuel production credit, the energy investment credit, the qualified advanced energy project investment credit, and the clean electricity investment credit.
Research credit offset against payroll taxes increases from $250,000 to $500,000, beginning for taxable years after 2022. Qualified small businesses may elect to treat as a credit against their payroll tax liability up to $500,000.
IRS enforcement received additional funding. About $80 billion over a 10-year period was allocated to the IRS to add auditors to enhance enforcement activities, improve customer service, and modernize technology. $15 million was also allocated to the IRS for potential creation and maintenance of an IRS-run e-file system.
Back in April 2022, HUD published updated income limits for FY 2022. These income limits were effective immediately and have been in use since then. The FY 2022 data gave us a look at several interesting changes:
HUD uses certain adjustments that impact income limits when it comes to determining annual very low-income limits (VLI). These limits are used by LIHTC, tax-exempt bond developments and many HUD programs. One of the adjustments is the cap on year over year changes. The adjustment is capped at the greater of 5% or two times the change in national median income.
For 2022, HUD has changed the way they are calculating the cap on year over year changes. Instead of using the change in national median income, which has been in place since FY 2010, it is using the change in national median income from the 2018 American Community Survey (ACS) to the 2019 ACS.
The new cap calculation ends up being less than the change in national median income from 2021 to 2022. In addition, the new calculation is based on ACS data that is three-to-four years old. This data ignores the current impact of inflation, which is the highest it has been since the LIHTC became a permanent part of the tax code.
According to a Novogradac study, “because the cap HUD is using is less than 50% of what it would be if HUD continued to use its past methodology, 1,465 areas out of 2,602 areas are capped (56%). About half of the areas are capped. In 2021, about 14% of the areas were capped.”
What does this mean for affordable housing residents? By decreasing the cap (using the new calculation method), it may make it harder for residents to qualify for affordable housing.
HUD updated its FY 2022 FAQ page to comment about rent increases, stating: “However, HUD has no control over how LIHTC rents are set and has not required or suggested rent increases. HUD continues to encourage property owners to exercise compassion with respect to tenants affected by the COVID-19 pandemic and would be surprised that an owner would be so out of step with the moment in which we are living to raise rents at this time.”
For 2022 Rent and Income limits, please visit Multifamily Rent & Income Limits (mnhousing.gov)
For questions on FY 2022 income limits and how they may affect your LIHTC or tax-exempt bond property, please contact the Real Estate Solutions Team at Mahoney.
MDS is gearing up for a busy winter, with four closings planned for preservation, historic and new construction projects around the Twin Cities. These projects will include approximately $59MM in total development costs and 300-plus units preserved or created.
MDS is also continuing to assist clients with funding applications in process to Minnesota Housing and other funders such as the City of Minneapolis, Hennepin County and Met Council, with award announcements expected later this year. Lastly, MDS continues to build its pipeline of new projects, ranging from existing portfolio recapitalizations to new construction opportunities.
The Real Estate Solutions Team at Mahoney has been out and about attending various affordable housing events in our community. Please take a look and see where we have been recently.
Partners Donna Stevermer and Tom Johnson attended the open house for Burnes Building in Hopkins in August. The complex has 43 affordable apartments for families and is named after Dr. Katherine Burnes, Hopkins’ first doctor.
*Photo credit to Veronica Naranjo
Members of the Real Estate Solutions Team attended the groundbreaking ceremony for Rise on 7 in St. Louis Park in August. This exciting new project combines affordable housing with a childcare/early learning center.
*Photo credit to Donna Stevermer
Members of the Real Estate Solutions Team attended a happy hour for the Minnesota Housing Partnership sponsored by Colliers Mortgage. Here, team members were able to connect with colleagues in the affordable housing industry.
Members of the Real Estate team attended the 2022 CommonBond Gala. All the proceeds from the Gala will be used to support CommonBond’s Advantage Services which benefits youth, seniors, families, and individuals who call CommonBond home.
Members of the Real Estate team attended the 2022 Alliance Housing Fundraising Breakfast. Proceeds will go towards building maintenance and to ensure that rent remains affordable for their tenants.
Members of the Real Estate Solutions Team attended the Sherman Associates grand opening of Beam Apartments. The Beam Complex will bring 72 income-restricted apartment homes (50% & 60% AMI) and 20 income-restricted townhomes (80% AMI) to the Jordan Neighborhood of North Minneapolis.
Members of the Real Estate Solutions Team attended the Clare Housing Place to Call Home Luncheon in September. The Twin Cities Gay Men’s Chorus performed at this event. All proceeds went towards supporting Clare Housing residents.
During the third week of my internship in 2016, I met my future wife at my bank while depositing an expense check on a Saturday morning (thankfully this was before we had direct deposit for expense checks; thankfully we now have direct deposit for them!). We hit it off right away, and when she passed my deposit slip to me, it had her phone number on it! We’ve been married for four years now, and we live with our dog Ginger who is a Vizsla mix. It’s ok if you have to google Vizsla, I had to, too.
Outside of the office I also enjoy teaching as a contract faculty member for Concordia University in the online accounting program. Sharing knowledge with the future accountants of the world is rewarding, and it is great when I hear back from them about the new positions they have landed after graduating. During the summer my wife and I are fortunate to be able to visit her parents’ lake home, where they have an old cabin that we can use as our own space which was a part of a resort back in the day when her grandfather originally purchased the property in the early 1960’s. In the summer of 2020, like many others we also started gardening in our backyard. This year we have three types of peppers, tomatoes, beans, mint, basil, lemon balm, and lavender, all started from seed. We also grow our own magnolias and coleus to place in various pots around the yard. You may also find me out on the golf course, but don’t be surprised if you hear a call of “fore!”, as I am still working on my game.
It has been fun sharing a bit about myself with you all. If you have questions about real estate development, please feel free to reach out via email: email@example.com, or connect with me on LinkedIn. I look forward to hearing from you.
*Photo credit in this section to Jeff DeGree
Outside of work, I enjoy crocheting, baking, and watching movies. I really try to stick to indoor activities since I am allergic to almost everything outdoors.
I have made several crochet projects over the years, including stuffed animals, blankets, mittens, slippers, scarves, hats, and most recently I began working on a crocheted cat couch one of my friends asked me to make for them.
When I bake, I am usually making deserts such as cakes or brownies. My favorite items to make are plum cake and a chocolate cake recipe that I received from my grandmother.
My all-time favorite movies include, Singin’ in the Rain, My Fair Lady, and How to Steal a Million Dollars. I also like to watch action movies such as the Die Hard, Expendables, or Underworld movies.
My two cats, Woodhouse and Jasper enjoy snuggling with me while I crochet and watch movies. Woodhouse is a 6 year old gray tabby, and Jasper is a 15 year old black cat.
*Photo credit in this section to Lauren Code