IRS Notice 2022-05 extends housing credit program deadlines
In response to the ongoing impact of the COVID-19 pandemic on housing credit properties, the Internal Revenue Service has issued guidance (IRS Notice 2022-05) providing temporarily relief from many key housing credit program deadlines. While the new guidance arrived after previous deadline extensions had expired (IRS Notice 2020-53, IRS Notice 2021-12, and IRS Notice 2021-17), the January 2022 notice alleviates much of the confusion experienced in the interim. Further clarity was also provided regarding the calculation of initial year credits for properties leasing in 2020, 2021, and 2022.
Development period deadlines
10% Test |
|
Original Deadline |
New Deadline |
April 1, 2020 – Dec. 31, 2020 |
+ 2 Years |
Jan. 1, 2021 – Before Dec. 31, 2022 |
Dec. 31, 2022 |
Minimum Rehab Expenditures | |
Original Deadline |
New Deadline |
April 1, 2020 – Dec. 31, 2021 |
+18 months |
Jan. 1, 2022 – June 30, 2022 |
June 30, 2023 |
July 1, 2022 – Dec. 31, 2022 |
+12 months |
Jan. 1, 2023 – Dec. 30, 2023 |
Dec. 31, 2023 |
Bond-financed properties: April 1, 2020 – Dec. 31, 2023 |
Earlier of +18 months or Dec. 31, 2023 |
Placed-In-Service Deadline |
|
Original Deadline |
New Deadline |
Dec. 31, 2020 |
Dec. 31, 2022 |
Dec. 31, 2021 and original 10% test deadline was before April 1, 2020 |
Dec. 31, 2022 |
Dec. 31, 2021 and original 10% test deadline was April 1, 2020 – Dec. 31, 2020 |
Dec. 31, 2023 |
Dec. 31, 2022 |
Dec. 31, 2023 |
Initial year credit considerations
Initial year credit calculation: In a modification from IRS Notice 2021-12, the current notice recognizes the ongoing impact of the pandemic and extends to properties in lease-up during 2022. Acting like an initial year basis boost, if a building’s first credit year is 2020, 2021, or 2022, the new notice indicates that the qualified basis is calculated by taking into account any low-income units leased through June 30 following the close of that first year.
The new guidance alleviates the need for property owners with less than 100% units leased at year-end to defer credits to avoid the two-thirds credit issue. The rule does not increase the credits calculated in the first year, but it is valuable for starting credits on buildings sooner. For example, if there is a building that has a weighted average occupancy of 33% in Year 1 but is only 70% occupied at the end of the year, an owner would consider deferring the credits to avoid a two-thirds credit on the remaining 30% of the building. With this relief provision and assuming the remaining 30% of the building is rented by June 30 of the subsequent year, the building will not have two-thirds credits going forward.
Casualty loss
Restoration period for casualty loss: For all casualty losses that occurred after the president’s disaster declaration on March 13, 2020, any deadline to restore a property that was originally on or after April 1, 2020, will be extended by 18 months, but not later than Dec. 31, 2022. The state agency may notably supersede the IRS Notice and may require a shorter extension, or no extension.
For tax credit calculation purposes, if the property is restored within the restoration deadlines noted, the property must utilize the qualified basis from the year prior to the casualty’s occurrence in each of the taxable years between the casualty and restoration.
Tax credit compliance guidance – Treas. Reg. Section 1.42-5
Compliance correction period: With respect to compliance under Treasury Regulation Section 1.42-5, the IRS has issued the following extensions. The state agency may supersede the IRS Notice and may require a shorter extension, or no extension.
Compliance Correction Period |
|
Original Deadline |
New Deadline |
April 1, 2020 – before Dec. 31, 2021 |
+1 year, not beyond Dec. 31, 2022 |
Jan. 1, 2022 – Dec. 31, 2022 |
Dec. 31, 2022 |
Tenant file reviews: In an effort to reduce the near-term compliance reporting burden, state agencies are not required to review tenant files between April 1, 2020, and Dec. 31, 2021. However, tenant file review must resume by Jan. 1, 2022. The reasonable notice period through the end of 2022 is expanded to 30 days but reverts to a 15-day notice period beginning Jan. 1, 2023.
Physical unit inspections: Due to concerns over COVID-19 transmission, state agencies will not require physical unit inspections between April 1, 2020, and June 30, 2022. The waiver period can be extended should the need arise as determined by each agency, but not to exceed Dec. 31, 2022.
Common area closure: Any temporary full or partial unavailability or closure of an amenity or common area in a housing credit property between April 1, 2020, and Dec. 31, 2022, will not result in a reduction of eligible basis, but only if due to COVID-19.
Conclusion
The notice provides much-needed relief to alleviate some continuing issues being felt by housing credit property owners and state agencies during the pandemic. These rules are very fact-specific, so consult with your trusted advisors to determine how they may apply to your project.
Beth Mullen, CPA, Partner, Affordable Housing practice leader
916.930.5750
Matthew Barcello, Senior Manager, Tax Credit Investment Services, Project Finance & Consulting
617.603.4514
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