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Insights on Maximizing Wisconsin’s Low-Income Housing Tax Credits

Insights on Maximizing Wisconsin’s Low-Income Housing Tax Credits

The Low-Income Housing Tax Credit (LIHTC) program has been in place for over thirty years as a way for the state and federal governments to encourage development and investment in low-income multifamily housing options. It is designed to subsidize the acquisition, construction, and rehabilitation of affordable rental housing.

Mike Kendhammer, a Principal with SVA Certified Public Accountants, is a national leader and expert in helping developers plan their projects using these tax credits. “The first thing I tell developers who are interested in LIHTCs is that they can have the best idea, a great piece of property, and a well-thought-out plan, but if it doesn’t fit with what the state is looking for in the Qualified Allocation Plan (QAP), the project will not get funding,” states Mike.

For example, Wisconsin receives an allocation each year and the competition for the funds is fierce. Overall about 1 in 3 projects receive funding in this competitive process which is driven by a point scoring system.

According to Mike, there are sixteen categories to score. The main areas where a project can separate itself from competing projects under the current, recently revised, QAP include:

  • Being in a Qualified Census Tract
  • Proximity to public transportation
  • Having a family component
  • Partnering with a nonprofit or minority developer
  • Located in areas with high rent burdens
  • Located in areas with median incomes higher than average
  • Proximity to certain services and amenities
  • Better than average schools
  • Located in areas that are top jobs centers and have net job growth

Developers who are successful in receiving LIHTCs know that details in the application process are crucial. But before you get to the application process, start by talking with an expert in the field. The time spent talking about your project with someone experienced in the process will quickly pay for itself. It’s an expensive process to go from an idea to execution, so taking the time up front to do a preliminary review of your project with an expert will give you an idea of what your tax credit opportunities might be.

After you receive confirmation that your project has potential, go through the scoring and application processes. Credit applications are due in the fall with the funds being distributed once a year. After you receive your credit confirmations, you can put together a package and proposal for investors. There is an enormous benefit for investors if your project has the backing of LIHTCs.

“Start preparing your application 6-9 months before the deadline and utilize the industry expertise available,” continues Mike. “Don’t go it alone in this competitive process. I’ve watched many deals that look great on the front end, but fall apart on the back end. This is one of the safest asset classes in real estate, but not every project is a success. The rules are relatively straightforward, but understanding the environment in which the rules are applied is the key to success.”

Contact Mike for more information on maximizing your Low-Income Housing Tax Credits.

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Biz Tip Topic Expert: Chris Fearn, CPA

Chris Fearn, CPA

Chris is a Principal with SVA Certified Public Accountants with expertise in the real estate and nonprofit industries. In his role, he manages and performs audits for owners of affordable multifamily housing projects receiving Section 42 Low-Income Housing Tax Credits.

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