Find Homeowner Assistance Fund Programs by State: Read More

IRS Issues Guidance on Implementation of Housing Credit 4 Percent Minimum Rate

Published on December 1, 2021 by Jennifer Schwartz
IRS Issues Guidance on Implementation of Housing Credit 4 Percent Minimum Rate

On December 1, the Internal Revenue Service (IRS) issued Revenue Ruling 2021-20 and Revenue Procedure 2021-43 providing guidance to address ambiguities related to the application of the Housing Credit 4 percent minimum rate for bond-financed buildings.

The Consolidated Appropriations Act of 2021 made the 4 percent minimum rate available to buildings placed in service after December 31, 2020, that meet the following criteria:

  • Any building which receives an allocation of Housing Credit dollar amount after December 31, 2020, and
  • In the case of any building, any portion of which is financed with an obligation described in section 42(h)(4)(A), any such building if any such obligations which so finances such building is issued after December 31, 2020.

The second clause raised questions about whether an affordable housing development that receives tax-exempt bond authority from more than one calendar year spanning before and after December 31, 2020, would be eligible for the 4 percent minimum rate, and if so, whether there is a minimum portion of bond authority that must be received from bond issuances after that date to qualify. The clause also left unclear whether a property would qualify for the 4 percent minimum rate if it were financed with ā€œdraw-downā€ bonds, in which the bond issuer provides volume cap authority for a bond to finance the building and for which there are multiple draws from that bond authority over a period of time spanning before and after December 31, 2020.

NCSHA sent a letter to IRS on February 26 urging them to issue guidance clarifying these issues and other questions about implementation of the 4 percent minimum rate. Today’s guidance addresses these questions as follows.

The 4 percent minimum rate does not apply to a building financed in part with a draw-down exempt facility bond issue that was issued in 2020 and on which one or more draws are taken after December 31, 2020.

The 4 percent minimum rate does not apply to a building financed in part with proceeds of an exempt facility bond issue that was issued in 2020 and in part with proceeds of a different exempt facility bond issue that is issued in a de minimis amount after December 31, 2020. Revenue Procedure 2021-43 clarifies an exempt facility bond issue issued after December 31, 2020, that finances the building in question is not de minimis if, as of the latest issue date of any such issue, the aggregate amount of the post-2020 obligations is at least 10 percent of the total amount of all tax-exempt bond obligations that finance the building.

The 4 percent minimum rate does not apply to a building that receives an allocation of Housing Credit dollar amount in 2020 and a de minimis additional allocation after December 31, 2020.

When the 4 percent minimum rate applies to a building, it applies to any 30-percent-present-value applicable percentage used to compute Housing Credits for the building. A binding agreement to use a pre-placed-in-service month for determining the applicable percentage is therefore irrelevant.

The guidance is intended to prevent windfalls of credit authority in which a project is structured without the 4 percent minimum rate and is financially feasible as such. It is also meant to reduce any incentive for the borrower to seek an unnecessary de minimis amount of bond authority or additional Credit authority just to get the 4 percent minimum rate.