14.3 Historic and New Markets Tax Credits

A. Federal Historic Preservation Tax Credit Program. The Federal Historic Preservation Tax Credit (HTC) program encourages private sector investment in the rehabilitation and re-use of historic buildings. The National Park Service and the Internal Revenue Service administer the program in partnership with State Historic Preservation Offices. Some states also offer tax credits for historic buildings and encourage applicants to apply to both federal and state programs together. The HTC can be coupled with other local, state and federal incentives as well, including LIHTC.

B. New Markets Tax Credits. New Markets Tax Credits (NMTC) are administered by the Community Development Financial Institutions Fund, or CDFI Fund, (a program within the U.S. Department of the Treasury) and the Internal Revenue Service. NMTC can be used to finance a number of property types including mixed-use with multifamily so long as the property is within a low-income community as defined by the U.S. Department of the Treasury. NMTC investors typically invest in intermediary entities, Community Development Entities (CDEs), which then provide funding to the project-level ownership entity, usually in the form of non-traditional debt. No more than 80% of a NMTC property can be residential on a square footage and income basis; 20% or more must originate from a commercial use. NMTCs can be combined with HTC but are not typically combined with LIHTC.

C. HTC and NMTC programs. The HTC and NMTC programs are only occasionally used in FHA-insured projects, so policies for each program are not provided in this chapter; however, to the extent it is legally permissible and consistent with FHA’s mortgage credit and underwriting standards, HTC and NMTC may be used in a manner similar to that described below for LIHTC projects[62] . For example, Equity Bridge Loans (EBL) may be used by Borrowers and/or tax credit investors as a substitute for the pay-in of HTC equity during a project’s development and stabilization phases (see Section 14.16). The Lender should approach HUD at concept to discuss the proposed structure of the HTC and NMTC transaction, particularly any areas of deviation from the standard LIHTC structure to confirm acceptability. The Lender and HUD Underwriter are responsible for verifying that the amounts and timing of the HTC or NMTC contributions are reasonable and can be expected to meet the development costs of the project. The Lender is also responsible for documenting the financing terms associated with HTC and NMTC in the Lender’s Narrative and the form HUD-92013-C LIHTC Summary Report (LIHTC transactions only).

62 The tax credit equity pay-in schedule found in Chapter 14.13 does not apply to HTC or NMTC transactions.

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Chapter 14 LIHTC and Other Tax Credit Programs 14.4 Subsidy Layering Review

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