26 MARCH / APRIL 2018 New Tax Law And your Low Income Housing Tax Credit investment PSP SHOWCASE Cinnaire Corporation is a full-service community development financial organization that works with hundreds of banks to channel tax-advantaged investments to apartment communities priced affordably for lower income households. Over the past 25 years, Cinnaire has arranged and invested nearly $3 billion through Low Income Housing Tax Credit (LIHTC) equity investment funds. As the Tax Cuts and Jobs Act has been enacted, we’ve been closely examining the current and potential implications this legislation will have on the affordable housing industry. As a resource for our partners in the banking industry, we recently sought insights from several CPA firms to answer commonly asked questions regarding how the new tax law will affect existing and future investments in LIHTC developments. How does the reduction in the tax rate impact current benefits in a Low Income Housing Tax Credit development? The return on investment or yield for an affordable housing LIHTC investment is derived from both housing tax credits and tax benefits from losses. The reduction of the corporate tax rate from 35 percent to 21 percent will produce lower tax benefits from losses. Typically, prior to the new tax law, losses comprised about 25 percent of the overall yield, whereas now, the loss benefits now comprise about 15 percent. The good news is that the tax credits are not affected and will continue to offer a dollar-for-dollar reduction in an investor’s federal taxes. The reduction in the benefits from the tax losses will result in a lower return on investment or yield for existing investments. How does the reduction in tax rate impact GAAP value of existing investment in affordable housing? Benefits from the LIHTC investments are primarily derived from a combination of the tax credits and losses. Knowing that the tax rate has been reduced, the benefits from the losses will also be reduced. The two common methods for valuing an investment are the proportional amortization method and the equity method. Impairment will result if the value of Tom Edmiston 7:4 &YWMRIWW (IZIPSTQIRX Cinnaire Corporation tedmiston@@cinnaire.com Cinnaire Corporation is a Preferred Service Provider of the Indiana Bankers Association. CINNAIRE CONTACTS Vicki Mincey VP of Capital Management 517-364-8922 vmincey@cinnaire.com Chris Guy Fund Manager 517-580-0143 cguy@cinnaire.com TECHNICAL PARTNERS Dauby, O’Connor & Zaleski LLC Nancy M. Morton, Tax Member 317-819-6141 NMorton@doz.net Plante Moran Robert C. Edwards, CPA, Partner 517-336-7460 Robert.Edwards@plantemoran.com
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