TACIR Releases Report on Valuing Low-Income Housing Tax Credit Properties in Tennessee

Tuesday, March 17, 2015 | 10:06am

Report CoverNashville, TN, March 17, 2015—Low-Income Housing Tax Credits (LIHTC) are the most significant federal incentive to support affordable housing for low-income Americans and have broad support at all levels, but there is wide disagreement about the most appropriate approach to valuing the properties they help fund.  The LIHTC program promotes investment in low-income housing with federal tax credits granted in return for restrictions on rent and tenant income.  Without the credits, which are the primary source of income for investors in these projects, they likely would not be built.

Because the credits are an indication of what the property is worth to a buyer, Tennessee property assessors consider the credits when determining the value of these structures for property tax purposes.  But the amount they add declines over time as the credits phase out, which can cause a cash flow problem for the taxpayer in the early years when tax bills are larger.  The tax bill starts high the first year and drops each year until the tax credits run out after ten years.

Legislation proposed in Tennessee last year by state Senator Steve Southerland and state Representative Jeremy Faison would have prohibited considering tax credits when valuing low-income housing for property tax purposes.  The Tennessee Advisory Commission on Intergovernmental Relations, a public policy group called on to study the legislation, found that while it would have eliminated the cash flow concern, it would have failed to account for the full value of LIHTC properties and would have reduced local government revenue.  In its recently released report, the Commission described two other alternatives to the current method, both of which would make it easier for property owners to budget for taxes while still recognizing the properties’ market values.

The first alternative, currently used in Idaho, spreads the total amount of credits allocated to the project evenly over the life of the 30-year restricted-rent agreement.  This alternative levels out the tax payments and brings in slightly more in total taxes over 30 years than excluding the credits completely but much less than the way it’s done now.  The second alternative discounts the remaining credits to their current value, sums them, and spreads the total evenly over the restricted-rent period.  This alternative would not change the total amount paid over time.

The full report is available on TACIR’s web site.  For more information, contact David Lewis, Research Manager, by email or by phone (615) 532-9713.

TACIR Mission

The Tennessee Advisory Commission on Intergovernmental Relations serves as a forum for the discussion and resolution of intergovernmental problems and a source of research for state and local officials to improve the overall quality of government in Tennessee and the effectiveness of the intergovernmental system in order to better serve the citizens of Tennessee.

Advisory Commission on Intergovernmental Relations