WASHINGTON -- The Internal Revenue Service has issued guidance to provide temporary relief from some tax requirements for bond-financed qualified residential rental projects in the event of a presidentially-declared major disaster.
The guidance appears in Revenue Procedure 2014-50, which was issued last Thursday, and is effective for all major disasters declared on or after Aug. 21, 2014.
The Rev. Proc. would provide relief for one year after a presidential declaration of major disaster and would apply to projects financed with exempt-facility private-activity bonds issued by state and local governments.
It basically would allow operators of such projects to take in displaced persons without violating some of the tax requirements.
"I think this is very helpful guidance to address some of the difficulties that have arisen from major recent disasters, such the flooding in Colorado last year, said Matthias Edrich, a shareholder at Greenberg Traurig LLP.
Under the federal tax code, a qualified residential rental project must meet one of two requirements: either 20% or more of the units must be occupied by individuals whose income is 50% or less of the area median gross income or 40% or more of the units are occupied by those with incomes of 60% or less of area median gross income.
The "qualified project period" means the period beginning on the first day on which 10% of the units are occupied and ending on the latest of: 15 years after the date on which 50% of the units are occupied; the first day when no tax-exempt project-activity bonds issued for the project remain outstanding; or the date on which any assistance provided under Section 8 of the U.S. Housing Act of 1937 terminates.
Also the project can't have transient residents like a school would have.
Once someone meets the income limits for the project and becomes a renter, if his or her income eventually rises above the, the operator must rent the next available unit to someone who meets the income limits. This is sometimes referred to as the "the next available unit rule."
Under the new Rev. Proc., the operator of a project may provide emergency housing relief for displaced individuals and those individuals would not count toward determining when the qualified project period begins. They also would not count as transient residents.
In addition, the owner of the project wouldn't have to count the displaced individuals when determining whether the owner is compliance the "next available unit rule."
