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Housing Tax Credit and the Basis Boost
Periodically, we like to review existing rules and requirements in the federal affordable housing programs. We continue to see a number of low-income housing tax credit properties in Qualified Census Tracts(QCT) or Difficult Development Areas (DDA). QCTs and DDAs can “boost” the investment basis in a tax credit property by 30% to make such properties more feasible. 
The following is a review of definitions and concepts when working with a development in a QCT or DDA. In sum, a QCT or DDA are developed by HUD, based on Census data, in areas that are extremely poor or extremely expensive. Basically, areas where developing affordable housing will be particularly needed, but particularly difficult.
QCTs: It used to be that QCTs pretty much stayed the same after each decennial census for 10 years. That is no longer the case, as HUD now uses data from the annual American Community Survey and as a result, they are making changes more frequently. So, it’s really important that you not assume that because a building was in a QCT last year that you don’t have to worry about it for this year.
DDAs: Beginning next year, HUD is going to begin using “Small Area FMRs”, defined at the zip code level, rather than metropolitan statistical areas, to designate DDAs. Although the list has not (to my knowledge) been issued, the new list for 2016 is very likely to be substantially different from prior years because of this new methodology.
“Grandfathering” Rule: If a building was in a DDA (and the HUD rule seems to indicate that this applies to QCTs also) in one year and it is removed from the list in a subsequent year, there is a transition rule that might  allow the project to continue to benefit from the basis boost. If a complete application is filed with the state housing credit agency when the building is still in a DDA or QCT (in other words, before the effective date of the new list in which the building dropped off) and the allocation of credits is made within 365 days of the submission, the building remains qualified for the basis boost. For example, a project is in a QCT in 2014 and it submits an application on December 1, 2014, for 2015 credits, the project can still get the basis boost if it’s not on the 2015 list, provided the allocation is made before December 1, 2015. A similar rule applies for bonds—if a complete application is submitted to the bond issuing agency and the application is submitted before the effective date of the new list, the building still gets the basis boost provided that both the bond issuance and placement in service occur after the application is submitted and within 365 days of the application submission.
State Discretionary Boost: If the project doesn’t qualify under the grandfathering rule, under Section 42(d)(5)(B)(v), the state can provide the basis boost for any project (but not bond projects) in the state provided they determine it’s necessary for financial feasibility. Presumably, if the state believes that the project needed the boost under the QCT or DDA rules, then they should be able to make that conclusion under this authority.


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