Confirm Key Owner Elections by Reviewing IRS Form 8609
As a tax credit manager, you need to know about certain elections that owners make when they file Form 8609 with the IRS to keep your site in compliance with the tax credit program’s requirements. But because owners complete this form, you may not get to see it. As a result, you may operate your site based on inaccurate information or false assumptions about which elections your site owner made.
For instance, an owner may elect on Form 8609 to meet its site’s minimum set-aside by the end of the placed-in-service (PIS) year. But if you mistakenly believe that the deadline is the end of the year following the PIS year, you may not lease up enough units to qualified low-income households in time. If you miss the deadline, you’ll put all the owner’s tax credits at risk.
Fortunately, you can avoid problems by getting copies of Form 8609 for each tax credit site you manage. Make sure you get one Form 8609 for each building at the site. Then review this form to confirm certain key elections your site owner made. Here’s a rundown on the owner elections that you need to confirm, and where to find each election on Form 8609.
Election #1: Placed-in-Service Date
The PIS date is the date from which you must start complying with IRS and state housing agency regulations. Each building has its own PIS date. So different buildings at your site may have different PIS dates.
The PIS date also starts the clock for record-keeping purposes. Tax credit record-keeping rules require sites to keep first-year records for six years after the filing date (with extensions) of the 15th year of the site’s compliance period. And sites must keep records for each remaining year of the compliance period for at least six years after the filing date (with extensions) for that year.
The IRS defines the PIS date differently depending on whether a building is new construction or rehabilitated.
New construction. For new construction, the PIS date is the date on which the first unit in the building is certified as suitable for occupancy, according to local law. This is the certificate of occupancy date and not the date the building is finished or the date the first resident moves in.
Rehabilitations. For rehabilitation of existing buildings, the owner chooses the PIS date. In some cases, however, you must get your state housing agency’s approval. This date applies whether or not the building is occupied during the rehabilitation period. The IRS says this date must be within two years of the date the owner first begins expensing the project for tax purposes. For example, if the owner begins expensing the project for tax purposes on April 1, 2017, the last date the owner may choose for a PIS date would be March 31, 2019.
Where to look on form. The PIS date appears on line 5, which is completed by the state agency.
Election #2: When Credit Period Begins
Owners must elect whether they want their site’s credit period to begin the year it’s placed in service or the following year. The credit period, which lasts 10 years, is the time during which owners can claim the tax credits they were allocated. Knowing when the credit period begins is key because it’s also when the compliance period begins. During the compliance period, which lasts 15 years, your site owner’s credits may be at risk if the site falls into noncompliance.
Where to look on form. If the owner checked “Yes” on line 10a, then the site’s credit period begins the first year after the year the building was placed in service. If the owner checked “No,” then the credit period begins with the PIS year.
Election #3: Minimum Set-Aside
To participate in the tax credit program, each site must have at least one minimum set-aside. That’s the minimum percentage of units that must be rented to qualified low-income households. If you don’t meet the set-aside on time, the IRS can recapture the owner’s credits for the entire site going back to the first year the site was placed in service.
Where to look on form. See line 10c. The form directs the owner to check a box to elect his minimum set-aside requirement. The choices are 20-50, 40-60, or (in New York City only) 25-60. The first number in the pair (e.g., the 20 in 20-50) is the percentage of residential units in the site that must be leased to qualified low-income households at restricted rents. The second number in the pair (e.g., the 50 in 20-50) is the maximum percentage of area median gross income that a household may earn to be eligible.
It’s important to note that the elected income limit applies to all the low-income units, not just the minimum number of units. For example, if you own a 100 percent low-income building and elect the 20-50 minimum set-aside, then the income limit used to determine whether a household is income qualified is 50 percent of the area median gross Income for all the low-income units, not just the 20 percent minimum number of units.
Election #4: Deadline for Meeting Minimum Set-Aside
You must know for certain how much time you have to meet your site’s minimum set-aside. If your building was placed in service on Jan. 1, 1991, or later, you must meet your set-aside by the end of the first year the owner claims credits. The year the owner first claims credits is either the PIS year or the following year. If you don’t meet your minimum set-aside by the deadline, the owner won’t be able to claim its tax credits.
Where to look on form. To learn how fast you have to rent out the building to meet your minimum set-aside, look at line 10a. This line asks whether the owner “elect[s] to begin the credit period the first year after the building is placed in service.” If the owner checked no, then the credit period began in the PIS year. If the owner checked yes, then the credit period began the year following the PIS year.
Election #5: Where Set-Aside Applies
An owner of a multi-building tax credit site may elect to meet a separate minimum set-aside for each building or combination of buildings. For example, suppose two managers each manage a two-building tax credit site. One site’s owner chose to have her manager meet the 20-50 set-aside for one building and the 40-60 set-aside for the second building. The second manager, however, must meet the 40-60 set-aside for both buildings at his site combined.
Where to look on form. Line 8b asks whether the owner is “treating this building as part of a multiple building project.” If the owner checked no, the set-aside applies only to the building covered by the Form 8609. If the owner checked yes, the set-aside for the building also covers at least one other building. If that’s your situation, the owner should have attached a statement to the Form 8609 identifying each building that belongs to the site.
Election #6: Deep Rent-Skewing
Although it’s not common practice, the owner of a site you manage may have elected to make the site “deep rent-skewed.” This is most likely the case if your site is located in a city where market rate rents are high. If so, you must maintain an additional set-aside throughout the compliance period. This set-aside, known as the “deep rent-skewed set-aside,” is 15-40 and applies only to the low-income units at your site (unlike the minimum set-aside, which applies to all units). If, for instance, you have 60 low-income units at a deep rent-skewed site, you must rent nine of these units (15 percent) to households earning no more than 40 percent of AMGI.
Where to look on form. If an owner elects to have its site deep rent-skewed, it must check the box on line 10d.