0968 Tax Credit Allocation Committee
0840 - CALIFORNIA TAX CREDIT ALLOCATION COMMITTEE
The Federal Low Income Housing Tax Credit Program:
Congress authorized the federal program in 1986. It replaced traditional housing tax incentives, such as accelerated depreciation, with a tax credit that enables developers of affordable rental housing to raise project equity through the "sale" of tax benefits to investors.
As of 2015, each state has an annual housing credit ceiling of $2.30 per state resident, and may qualify for a share of credits available annually in a national pool comprised of states' unused credits. The annual housing credit ceiling is indexed for inflation. Investors can take the annual credit against their federal income tax liability each year for a ten-year period.
The State Low Income Housing Tax Credit Program:
Recognizing the high cost of developing housing in California, the California Legislature authorized the State Low Income Housing Tax Credit Program to augment the federal tax credit program. Specifically, projects that are not receiving an increase in their federal tax credit basis may apply for and receive state tax credits. However, an exception to this rule is in place for projects serving Special Needs populations (as defined in Section 10325 of the CTCAC regulations). Those projects may apply for and receive state tax credits even if they are receiving an increase in their federal tax credit basis. The project's "eligible basis" is the portion of the total project cost that is used to calculate the amount of the tax credit.
Of the state credit authority amount, $500,000 annually is available as credit for farmworker housing projects.
The annual state credit ceiling is currently $93.8 million, indexed for inflation (in addition to any unused or returned credits from previous years). Investors take the state credit over a four-year period in contrast to the ten-year federal allocation period. The full four-year state credit allocated to a project is deducted from the annual state credit ceiling.
Tax-Exempt Bond Financed Program:
Developments financed with tax-exempt bond proceeds may also receive federal tax credit. The sponsors of such projects must apply to the Committee and must conform to applicable federal and state statutory and regulatory requirements, but there is no annual "cap" on the amount of credit that may be awarded by the state to such developments. The annual credit available is based on approximately four percent (instead of the nine percent for projects that are not financed with tax-exempt bond proceeds) of the "qualified basis" of the development. Qualified basis includes those costs attributable to the units that will be income and rent restricted for a minimum of 30 years.
Under federal law, credit projects must remain affordable for at least 30 years; however, California's program generally requires maintaining affordability for 55 years. Land use agreements are recorded against each credit project to ensure compliance.
Farmworker Housing Tax Credit Program:
Chapter 521, Statutes of 2008 (SB 1267) folded the previous Farmworker Housing Assistance tax credits into the general state low-income housing tax credit program. While $500,000 annually continues to be authorized for state tax credits in support of farmworker housing, the program now operates under the rules of the general state low-income housing tax credit program.