Massachusetts Housing Investment Corporation Massachusetts Housing Investment Corporation Cost Certifications and Tax Credits Cost Certifications and Tax Credits Presented by: Presented by: Karen Kent, CPA, Principal, Kevin P. Martin & Associates, P.C. Karen Kent, CPA, Principal, Kevin P. Martin & Associates, P.C. Ken Lund, CPA, Partner, Daniel Dennis and Company LLP Ken Lund, CPA, Partner, Daniel Dennis and Company LLP Kevin P. Martin, Jr,, CPA, Principal, Kevin P. Martin & Associates, P.C. Kevin P. Martin, Jr,, CPA, Principal, Kevin P. Martin & Associat es, P.C. October 19, 2007 October 19, 2007
Cost Certification Cost Certification I ndex I ndex The Tax Credit Process The Tax Credit Process � � LIHTC Overview LIHTC Overview � � Books and Records Books and Records � � CPA Documents CPA Documents � � Eligible Basis Initial Year Tax Credit Issues Eligible Basis Initial Year Tax Credit Issues � � Cost Certification Bridging Schedule & Sources and Uses Cost Certification Bridging Schedule & Sources and Uses � � Form 8609 Form 8609 � � Initial Year Credit Calculation Initial Year Credit Calculation � � Initial Year Tax Credit Issues Initial Year Tax Credit Issues � � Occupancy and Lease Issues Occupancy and Lease Issues � � Maximizing Tax Credits Maximizing Tax Credits � �
The Tax Credit Process The Tax Credit Process � Predevelopment Costs Predevelopment Costs � � One Stop Application One Stop Application � � Financials Projections Financials Projections � � Tax Credit Reservation Tax Credit Reservation � � 10% Letter Timing 10% Letter Timing � � Tax Credit Carryover Allocation Tax Credit Carryover Allocation � � Cost Certification Timing Cost Certification Timing � � Form 8609 Form 8609 �
LIHTC Overview LIHTC Overview
Books and Records Books and Records � Communication Communication � � Accrual basis of accounting Accrual basis of accounting � � Recording of predevelopment costs Recording of predevelopment costs � � General ledger chart of accounts is General ledger chart of accounts is � consistent with the sources and consistent with the sources and application of funds application of funds � Allocation of development costs Allocation of development costs � � Development and operating activity is Development and operating activity is � consolidated consolidated � Permanent file documents Permanent file documents �
CPA Documents CPA Documents � Offering memorandum/Letter of understanding/Property Offering memorandum/Letter of understanding/Property � fact sheet – – document describing the project in detail, document describing the project in detail, fact sheet such as, name, location, financing, funding, required such as, name, location, financing, funding, required reserves, etc. used to establish understanding among reserves, etc. used to establish understanding among developer, syndicator and investor) developer, syndicator and investor) � Tax opinion and Tax credit application Tax opinion and Tax credit application � � LIHTC initial allocation and carryover allocation letters LIHTC initial allocation and carryover allocation letters � � Complete Financial forecast Complete Financial forecast � � Partnership/LLC agreement (Original and Amended) Partnership/LLC agreement (Original and Amended) � � Development fee agreement Development fee agreement � � Purchase and sale agreement (acquisition of Purchase and sale agreement (acquisition of � land/property) and acquisition settlement sheet land/property) and acquisition settlement sheet � Financing agreements: mortgages and notes payable; Financing agreements: mortgages and notes payable; � mortgage commitment letter including construction mortgage commitment letter including construction financing; soft debt notes and agreements financing; soft debt notes and agreements
CPA Documents - - Continued Continued CPA Documents � Government grants, if applicable Government grants, if applicable � � Land use restriction agreement/regulatory agreement Land use restriction agreement/regulatory agreement � � Architect Agreements Architect Agreements � � Construction contract and copies of approved change Construction contract and copies of approved change � orders orders � Cost of commercial space Cost of commercial space � � Site improvements Site improvements � � Furniture, fixtures and equipment Furniture, fixtures and equipment � � Summary trial balance including development and Summary trial balance including development and � operations on an accrual basis operations on an accrual basis � Pre Pre- -development costs are recorded gross development costs are recorded gross � � Confirmations (Legal, contractor, Architect, etc Confirmations (Legal, contractor, Architect, etc… …) ) �
CPA Documents - - Continued Continued CPA Documents � Non Non- -cash activity is recorded cash activity is recorded � � General ledger detail including development and General ledger detail including development and � operations operations � Allocation of development costs detailing capitalized Allocation of development costs detailing capitalized � versus expensed and methodology used to allocate costs versus expensed and methodology used to allocate costs � Unit Information Unit Information - - unit basis and square footage basis unit basis and square footage basis � � Development payable detail listing Development payable detail listing � � Invoices available as requested Invoices available as requested � � Requisitions Requisitions – – available as requested available as requested � � Detail draws schedule for all sources of funds including Detail draws schedule for all sources of funds including � date, amount received and accrued interest, if any. date, amount received and accrued interest, if any.
Eligible Basis Eligible Basis What is Eligible basis? � What is Eligible basis? � Eligible basis includes � Eligible basis includes � � Building Acquisition Building Acquisition � � Local Impact Fees Local Impact Fees � � Construction Costs Construction Costs � � Soft costs: architect, legal, permitting, clerk of the works, Soft costs: architect, legal, permitting, clerk of the works, � survey, etc. survey, etc. � Refrigerators, stoves, air conditioners Refrigerators, stoves, air conditioners � � Parking lots, roads Parking lots, roads “ “closely associated closely associated” ” with use of the with use of the � building building � Grading and landscaping Grading and landscaping “ “closely associated closely associated” ” with the use with the use � of the building of the building � Capitalized interest including amortization of loan costs Capitalized interest including amortization of loan costs � � Developer Fees Developer Fees � � Amenities (swimming pool/recreational facilities Amenities (swimming pool/recreational facilities �
Eligible Basis - - Continued Continued Eligible Basis � Eligible basis does not include Eligible basis does not include � � Cost of land Cost of land � � Loan costs and fees (unless related to Loan costs and fees (unless related to � construction loans) construction loans) � State Housing Compliance Fees State Housing Compliance Fees � � Marketing/Advertising Marketing/Advertising � � Operating expenses during construction Operating expenses during construction � � Reserves required by lender Reserves required by lender � � Parking, roads, grading, and not integral to Parking, roads, grading, and not integral to � the building the building � Landscaping not adjacent to the building Landscaping not adjacent to the building � (trees along property line not eligible) (trees along property line not eligible)
Eligible Basis - - Continued Continued Eligible Basis � Rent Rent- -up costs up costs � � Organization and syndication costs Organization and syndication costs � � Development fees allocable to land Development fees allocable to land � acquisition and other in- -eligible project eligible project acquisition and other in costs costs � Construction Contingency (contingency Construction Contingency (contingency � should be reclassified by client to actual should be reclassified by client to actual natural category) natural category) � Ineligible financing Ineligible financing � � Allocation among 4% and 9% cost Allocation among 4% and 9% cost � � Source and Uses of Funds Source and Uses of Funds � � Bridging Schedule Bridging Schedule �
Cost Cert Bridging Schedule
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