As part of the Tax Reform Act of 1986, the United States Congress created the Low-Income Housing Tax Credit (LIHTC) (IRC Section 42) to promote development of affordable rental housing for low-income individuals and families. To date, it has been the most successful rental housing production program in Nebraska, creating thousands of residences with very affordable rents. The Low-Income Housing Tax Credit, rather than a direct subsidy, encourages investment of private capital in the development of rental housing by providing a credit to offset an investor's federal income tax liability. The amount of credit a developer or investor may claim is directly related to the amount of qualified development costs incurred and the number of low-income units developed that meet the applicable federal requirements for both tenant income and rents.
The Nebraska Investment Finance Authority (NIFA) is designated as Nebraska's housing credit allocation agency. NIFA's mission includes providing a broad range of financial resources for the development of affordable housing. NIFA also provides technical assistance for such activities. Because NIFA is self-funding, no Nebraska tax dollars are used to accomplish this mission.
Federal Low Income Housing Tax Credits (LIHTC) is a dollar-for-dollar credit against the federal income tax liability of the owner (developer or investor) of a low-income housing development. LIHTCs that are allocated to a development are claimed in equal amounts for a 10-year period. The rental property generating the LIHTC must remain in compliance with the program guidelines and rent restriction requirements for a period of not less than 30 years from the first taxable year of the LIHTC credit period.
Nebraska Affordable Housing Tax Credit
The amount of tax credits available for allocation each year by NIFA is established pursuant to the requirements of the federal Internal Revenue Code, in the case of the LIHTCs and Nebraska law, in the case of the Affordable Housing Tax Credit (AHTC). Tax Credits are awarded for specific developments pursuant to NIFA's Low-Income Housing Tax Credit Program Qualified Allocation Plan. Tax credits must be allocated by NIFA to a specific development in order for such credits to be claimed by the developer or investor. The procedures followed by NIFA in awarding both the LIHTC and the AHTC are described in the current Qualified Allocation Plan.
Frequently Asked Questions - Nebraska Affordable Housing Tax Credit Act
Updated January 14, 2019
(LB 217 amendments became effective August 24, 2017)
The Nebraska Affordable Housing Tax Credit Act (LB 884; LB 217; Neb. Rev. Stat. §77-2501 et seq.) (the “AHTC Act”)) creates a Nebraska state income tax credit (the “AHTC”) for the development of affordable housing modeled after the federal low-income housing tax credit (“LIHTC”) provided in Section 42 of the Internal Revenue Code (the “Code”). The Nebraska Investment Finance Authority (“NIFA”) and the Nebraska Department of Revenue (the “Department of Revenue”) are charged with the allocation and administration of the AHTC.
The following sets forth information with respect to several aspects of the AHTC Act and the administration of the AHTC.
What amount of AHTC Will Be Allocated in 2018?
All owners of qualifying developments (other than certain prior awards to CRANE projects) receiving an allocation of 9% LIHTC from NIFA in the 2018 Application Rounds will also receive an allocation of AHTC equal to no more than one hundred percent (100%) of the 9% LIHTC allocation. The total combined amount of LIHTC and AHTC allocated in connection with a qualifying development shall be determined by NIFA staff based upon underwriting of the development in order to meet the requirements of the 2018 Qualified Allocation Plan and the Act.
NOTE: The AHTC allocated in 2018 (as well as the ATAC allocated in 2017) may only be claimed for taxable years beginning on and after January 1, 2019 (e.g., generally for returns filed in 2020 and thereafter) and only with respect to developments placed in service after January 1, 2018.
For How Many Years May the AHTC be Claimed?
The AHTC may be claimed for a period of six (6) years, and specifically for the first six (6) years of the “credit period” as defined in Section 42 of the Code. For example, if an owner of a qualifying development receives an annual allocation of $250,000 of LIHTC and an annual allocation of $250,000 of AHTC, these credits would be available (subject to applicable provisions of the Code and the AHTC Act), as follows:
|Credit||Annual Amount||Credit Term||Total Amount of Credit|
|LIHTC||$250,000 annual allocation||10 years||$2,500,000|
|AHTC||$250,000 annual allocation||6 years||$1,500,000|
When May the AHTC First be Claimed?
The AHTC may be claimed during the first six years of the “credit period” (as defined in Section 42 of the Code) applicable to the development subject to the following conditions:
- the qualified development must have been placed in service after January 1, 2018
- the AHTC may only be claimed for taxable years beginning on and after January 1, 2019 (e.g., generally for returns filed in 2020 and thereafter)
What is the Effect on the AHTC if A Development is Placed in Service in 2018 and an Election to Defer the Credit Period for the Federal LIHTC to 2019 is Not Made?
If you claim the federal LIHTC in 2018 for the development, the credit period applicable to both the LIHTC and the AHTC will begin in 2018. Because the AHTC may not be claimed until the tax year beginning in 2019, you will not be entitled to the AHTC for tax year 2018. In this case, the AHTC will be available to be claimed for five (5) years, beginning with tax year 2019 and ending with tax year 2023. If the owner of the development elects to defer the start of the credit period for the LIHTC until 2019, the first year of the AHTC credit period will be 2019 ending with 2024.
What About “Stub” Years?
Beginning with 2019, the first year the AHTC may be claimed, if a qualified development is not fully occupied for the entire first year of the credit period, the AHTC will be limited to the federal LIHTC amount allowed in the first year of the credit period. Pursuant to the rules applicable to the federal LIHTC, the amount of AHTC reduction in year one (1) of the credit period may be claimed in year seven (7) of the credit period.
May an Interest in the AHTC be Transferred, Sold or Assigned Separate from the Ownership Interest in the Development?
An interest in the AHTC may not be transferred, sold or assigned separate from the ownership interest in the development. A “qualified taxpayer” (defined in the AHTC Act to mean a taxpayer owning an interest, direct or indirect, in a qualified project) may transfer, sell, or assign all or part of its ownership interest [in the development], including his or her interest in the AHTC. The interest in the AHTC may not be transferred, sold or assigned separately. For any year in which such interest is transferred, sold or assigned, the transferor shall notify the Department of Revenue of the transfer, sale, or assignment and provide the tax identification number of the new owner of the interest in the development at least thirty (30) days prior to the new owner claiming the AHTC. Please refer to the Department of Revenue regarding the manner of such notification.
What Nebraska State Tax Liability May Be Offset with the AHTC?
The AHTC may be used to offset any Nebraska individual and corporate income taxes, any premium and related retaliatory taxes assessed to insurance providers, and any franchise taxes assessed to financial institutions.
May AHTC Claimed but not Used in a Taxable Year be Carried Forward?
Yes; any AHTC claimed but not used in a taxable year may be carried forward. Currently, the AHTC Act does not specify the number of years the AHTC may be carried forward. Please refer to the Department of Revenue.
Is the AHTC Subject to Recapture?
Yes. If any LIHTC is recaptured during the 6-year period over which the AHTC is claimed, a portion of the AHTC will also be recaptured and shall increase the tax liability of the qualified taxpayer who claimed the AHTC.
Contact Sara Tichota, NIFA LIHTC Allocation Manager at (402) 434-3916 or firstname.lastname@example.org or Tom Milburn, Revenue Tax Specialist, at (402) 471-5814 or email@example.com at the Nebraska Department of Revenue.
In order to be considered for tax credits in Nebraska, the proposed development must involve new construction, substantial rehabilitation, or acquisition and substantial rehabilitation. For a building to be substantially rehabilitated, the expenditures during any 24-month period must be at least the greater of: (a) 20 percent of the depreciable basis of the building determined as of the first day of the 24-month period; or (b) an average of $6,700 per low-income unit.
Qualified new construction and substantial rehabilitation costs entitle the development owner to claim LIHTCs at a rate of approximately 9% (4% if tax-exempt bonds or other federal subsidies are used) each year for a 10-year period.
An eligible development must include a minimum percentage of units (20% or 40%) to be set-aside for eligible low-income tenants. The rent charged on these set-aside units is restricted so that the gross rent, with respect to such units, does not exceed 30% of the imputed income of the proposed occupant of the unit.
A development qualifies for LIHTCs if it is residential rental property and meets one of the following requirements:
* The median income tables are established and adjusted annually by HUD.
Since the majority of LIHTCs are awarded on a competitive basis, NIFA's Qualified Allocation Plan encourages "targeting" of the units to income levels lower than the federal limits described above.
Tax credits may only be claimed on units that have been set aside for participation under the program. Because of the significant benefit of the LIHTCs, it is common for developers to set aside 100% of the units for qualification under the LIHTC program. In doing so, developers or investors may claim the maximum amount of LIHTCs eligible for the development.
CROWN utilizes the federal Low-Income Housing Tax Credit program as a financing tool. Other sources of financing may be AHTCs, HOME funds, Affordable Housing Trust funds, Federal Home Loan Bank funds, local government grants and loans, and traditional development financing sources.
CROWN accommodates scattered site development, (as well as Planned Unit Developments when blended with owner occupied homes), creating long term neighborhood communities.
CROWN brings home ownership to households earning less than 60% of the area median income providing stable communities and a family legacy, which can be passed on to future generations.
A CROWN development is developed with the following steps:
A CROWN development owner selects residents who meet the CROWN program guidelines, which emphasize the long-term commitment aspect of CROWN. CROWN units must be targeted at households at or below 60% of area median income.
The leasing phase of the program is for a period of 15 years, which is the project owner's LIHTC 15-year compliance period. Leases are for one-year renewable terms and require tenants to assume most of the property maintenance responsibility just as a homeowner would. The property manager retains control and responsibility of major maintenance concerns during the project's 15-year compliance period.
During the leasing phase, tenants are provided supportive services and education to work toward homeownership.
At the beginning of the leasing phase, residents sign a letter of understanding describing their opportunity to purchase the home upon expiration of the 15-year compliance/rental period.
The conditions and terms of sale of a CROWN unit are outlined in the Low-Income Housing Tax Credit Land Use Restriction Agreement, which the project owner agrees to prior to award of the LIHTCs and AHTCs.
Upon satisfaction of the LIHTC tax credit period, the home is sold to the tenant for a sales price determined by the regulations and guidelines of the Low-Income Housing Tax Credit program. The tenant homebuyer will receive accumulated equity in the property, which may be required to be repaid if the home is re-sold within a certain period of time.
During the leasing period, a Homeownership Assistance Fund is used to provide the tenant a means of regular savings to prepare for unexpected repairs or maintenance, or to accumulate funds for a down payment for purchase of the home at the end of the rental period. A portion of tenant rent is set aside in the Homeownership Assistance Fund. At the end of the rental period, the balance remaining in the Homeownership Assistance Fund may be used by the homebuyer as a down payment toward the purchase of the home.
CROWN generally provides for a leasing period of 15 years, after which the CROWN unit is available for purchase by the tenant. An alternative within the program is to use the CROWN unit as a platform from which the tenant moves into homeownership through the purchase of a different unit after completion of an education process, depending on the income and credit standing of the tenant.
The focus and primary purpose of the CRANE program is to encourage the development of affordable housing through long-term, coordinated job creation/enhancement, housing development and community development strategies in Nebraska.
Together, NIFA and other collaborating resource providers work with communities and neighborhoods, who have joined with both profit and non-profit entities, that commit to participate in the CRANE Program.
CRANE is a resource allocation strategy designed to encourage collaborative efforts among the multiple resource allocators, such as NIFA, Department of Economic Development, HUD, local governments, non-profits and others, and their various programs.
CRANE's objective is to shorten the distance between resources and the public, thereby substantially increasing the value of the resource by matching them to the need. Resources are then allocated in a more collaborative and cost strategic manner that is goal and concept driven rather than "project driven."
The development must involve a collaborative allocation of substantial resources from an array of public and private organizations. Allocating participants must pre-commit and identify the amount and nature of the resources to be used.
The primary purpose of the CRANE Program is to provide targeted resources for the development of affordable housing to eligible applicants (communities and alliances between for-profit and non-profit entities) who are able to demonstrate that, through a public process, they have assessed the needs of their particular community with respect to economic development, housing development, community development and special needs populations (i.e., people with mental or physical disabilities) and developed a plan to address those needs.
Pursuant to the CRANE Program, applicants requesting consideration under the program must be able to evidence substantial benefit under the Eligible Projects section in the current CRANE Program Guidelines and Application. Property control, zoning and financing need not be finalized at the time of application submission; however, the applicant must provide a strategy and timeline within the plan for completing the required assignments and tasks.
NIFA has the authority to issue revenue bonds or other debt instruments to finance projects that involve the acquisition, construction or rehabilitation of rental housing projects in Nebraska for low to moderate-income households. If the bonds meet federal tax law requirements, the interest on the bonds is exempt from federal income tax and Nebraska state income tax. The bonds are repaid from the proceeds received by NIFA from the private developer under a revenue agreement (such as a lease, loan agreement or installment sale contract.)
Applicants of developments to be financed under the Multifamily Financing program are required to participate in the 4% LIHTC program administered by NIFA. Therefore, a specified minimum percentage of units in the project must not only be set-aside for occupancy by low-income households, but the rents charged for those units must also be restricted. All other units in the development must be rented to low and moderate-income households (incomes not in excess of 150% of area median income.)
In this process, NIFA functions as a conduit entity so that the interest paid on the bonds is tax-exempt, and generally below the interest rate on conventional borrowings. NIFA does not find a purchaser for the bonds. This is the responsibility of the developer and the investment bankers or underwriters the developer has engaged. The bonds may be sold either by using an underwriter (public sale) or by a private placement with a qualified institutional purchaser (usually a local bank).
To the extent a public sale of the bonds is contemplated, the developer will need to work with an underwriter to determine the necessary levels of credit corresponding to the desired market rate on the bonds. Typical examples of acceptable credits include: (i) FHA insurance on repayment of the loan; (ii) a pledge by a mortgage lender of collateral (i.e., securities or mortgages) to collateralize the repayment of the loan made by NIFA; or (iii) a letter of credit covering payment of the bonds or the developer's loan. (If a rating on the bonds is to be obtained, such letter of credit will need to be obtained from a major money center bank.) If the bonds are to be sold to the public, NIFA requires that the bonds be rated AA or better, or contain credit enhancement from an institution with a credit rating of AA or better. For bonds sold on a private placement basis, NIFA requires that the purchaser of the bonds execute an investor letter in the form provided by NIFA.
The rate and maturity of the loan to the developer depends on the quality of the credit and the interest rates generally prevailing in the financial markets with respect to publicly issued bonds. With a private investor, loan terms depend on the negotiations between the developer and the private investor. NIFA has no control over the terms or the rates.
In addition, the bonds must comply with the NIFA Multifamily Program Regulations.
Numerous federal tax law requirements must be met when NIFA issues bonds for rental housing projects. The federal statutory exemption for rental housing bonds that qualify for tax exemption is based on the use of the bond proceeds to provide residential rental facilities. Accordingly, Treasury Department regulations and rulings provide that the only project costs that may be financed (with certain exceptions) are those incurred within a timeframe beginning no earlier than 60 days prior to the time NIFA takes some official action (for example, approval of an application and adoption of an intent resolution) toward the issuance of the bonds.
Ideally, the intent resolution is adopted before any costs are incurred for the construction or acquisition of the facility to be financed. In any event, an intent resolution should be adopted as early as possble in a financing, for only those costs incurred within a period beginning no earlier than 60 days prior to the adoption of such intent resolution will qualify for tax-exempt financing. Financing or refinancing of costs incurred for land or other property acquired earlier than the date 60 days prior to the adoption of an intent resolution by NIFA is not permitted under federal tax laws.
Please review the LIHTC Allocation Plan for 4% LIHTCs.
The determination of eligibility of the proposed housing project for financing shall be made by NIFA on the basis of factors affecting the security of NIFA's loan(s) and compliance with the public purpose provisions of the NIFA Act. Applications must be received by the dates set forth in the LIHTC Allocation Plan for 4% LIHTCs.
The various fees associated with the Multifamily Financing program are outlined in the Fee Schedule section of the LIHTC Allocation Plan for 4% LIHTCs.
Prior to final approval of the financing, an allocation of Private Activity Volume Cap must be received in order for NIFA to issue the bonds. Allocations are issued pursuant to guidelines established by NIFA and the Executive Order of the Governor. An application for volume cap allocation must be submitted to NIFA.
Private activity volume cap allocations are limited. If at the time of your application volume cap is exhausted for the year, no allocation would be issued and the financing could not be approved during that year. The NIFA Board will review allocation requests on a first-come, first-served basis.