Question

1. Compute the Annual Low-Income Housing Tax Credit and the Total Equity from Tax Credits using the information below.  Assume the project is QCT/DDA eligible (10 points).

1. The Total Development Budget:        $12,000,000
2. Costs ineligible for Basis:                    $2,000,000
3. Applicable Fraction:                            90%
4. The Applicable Rate:                           9%
5. The Price Paid for the Tax Credits:     $1.00

What is the Qualified Basis?

What are the Annual Tax Credits?

What is the Total Equity generated by the Tax Credits?

Answer 1

Solution:

1. The qualified basis is the amount that generated the Low Income Housing Tax Credit & multiply by Applicable fraction

So in the above question,

Total Development budget = $12,000,000

Cost which is ineligible = $2,000,000

Qualified Amount = (Total Development budget-Cost which is ineligible)*Applicable Fraction

= ($12,000,000-$2,000,000) = $10,000,000

= $10,000,000*90%

= $9,000,000

2. Annual Tax Credit = (Qualified Amount*Applicable Percentage)

= $9,000,000*9%

= $810,000

Note: It is given that the development is located in designated high cost area.

So basis boos 30% is applicable.

So Basis Boos (30%) ($810,000*30%) = $243,000

Annual Credit after boost = Annual Tax Credit+Basis Boos

= $810,000+$243,000

= $1,053,000

Also, Total Credit is equal to ten times the annual credit after boost.

Now, Total Credit ($1,053,000*10) = $10,530,000

3. Development cost generated = (Total Development budget-Cost which is ineligible)*Applicable Fraction

= ($12,000,0000-$2,000,000) = $10,000,000

= $10,000,000*90%

= $9,000,000

The net tax credit to the investor is $(10,000,000-90,00,000)

= $1,000,000 or 11.11%($1,000,000/$9,000,000).