Indiana recently enacted a state Affordable and Workforce Housing Tax Credit (the “Affordable Housing Tax Credit”) program, similar to the federal Low-Income Housing Tax Credit (LIHTC) program to incentivize the development of affordable housing in the state. On March 15, Governor Eric Holcomb signed Senate Bill 382, omnibus tax legislation containing provisions for the new state Affordable Housing Tax Credit. The Affordable Housing Tax Credit will be available for certain low-income housing projects receiving a federal 4% LIHTC and will be claimed over a period of five taxable years.
The Indiana Housing and Community Development Authority (IHCDA) will consider applications and issue eligibility statements on and after July 1, 2023. Applicants that receive an eligibility statement may begin claiming credits against their Indiana state tax liability for taxable years beginning as soon as January 1, 2024. To be eligible, an applicant must own a qualified project or be an affiliated entity that is designated by the owner of a qualified project. In order for a project to be deemed a “qualified project” for purposes of the Affordable Housing Tax Credit program, such project must be:
- a “qualified project” for purposes of the LIHTC program;
- located in Indiana;
- financed by tax exempt bonds subject to the private activity bond volume cap;
- and eligible for a federal 4% LIHTC.
For each fiscal year beginning after June 30, 2023, but before July 1, 2028, IHCDA may award a total of $30 million in tax credits for qualified projects. For each approved project, IHCDA will have discretion to determine a state credit amount between 40% and 100% of the aggregate federal LIHTC amount. This state credit amount will be claimed over a period of five years, as opposed to the 10-year credit period for federal LIHTCs. If the tax credit holder has an amount of Affordable Housing Tax Credit that exceeds their state tax liability under the (a) Indiana adjusted gross income tax, (b) Indiana financial institutions tax, (c) Indiana insurance premiums tax, or (d) Indiana insurance premiums retaliatory tax for a given year, the Affordable Housing Tax Credit may be carried forward through the ninth year following the first year of the credit period for the Affordable Housing Tax Credit Program. Pass through entities, such as partnerships, that are entitled to state tax credits may allocate those credits among shareholders, members, or partners within that entity regardless of whether such allocation has substantial economic effect under Section 704(b) of the Internal Revenue Code of 1986, as amended.
Additionally, the tax credit holder may transfer, sell, or assign any portion of their Affordable Housing Tax Credit by reporting the transfer to the Indiana Department of Revenue and providing the transferee with certain documentation. The transferability of the Affordable Housing Tax Credit provides developers, sponsors, and investors greater flexibility when structuring their transactions.
Until the application period opens, IHCDA will be responsible for developing the application process and specifying the timing and information required by applicants. Owners of existing qualified projects and developers of future projects that are interested in applying for the Affordable Housing Tax Credit should stay apprised of the latest developments to prepare for applications opening on July 1, 2023. The Indiana state Affordable Housing Tax Credit program is currently set to expire after 2028; Senate Bill 382 requires the Indiana General Assembly to review the effectiveness of the credit one year prior to its expiration before determining whether to extend the program. Structuring state credits such as the Affordable Housing Tax Credit can be difficult, and any sponsors, developers, investors, or other interested parties should consult with qualified counsel to help determine the availability of the Affordable Housing Tax Credit for a specific project or ownership structure.
Frost Brown Todd counsels investors, developers, sponsors, lenders, and other key stakeholders on low-income housing transactions across the country. We stay at the forefront of all legislative efforts affecting the industry, and we are ready to assist clients with navigating the changing legislative environment.