Understanding Affordable Housing Compliance for Casualty Loss

We all know Affordable Housing Compliance is complicated, often confusing and potentially very costly when properties are out of compliance. Handling casualty losses in the affordable tax credit arena is a case in point. Casualties get separate treatment Disasters create particularly difficult situations for affordable housing owners and residents. Congress and the IRS have enacted laws and procedures in the attempt to help owners recover from the casualty event. Unfortunately, the laws end up treating casualty events separately from other disaster responses. We must be aware of the differences to protect our properties properly. The IRS created Revenue Procedure 2007-54 to provide temporary relief from Internal Revenue Code §42 requirements for owners of low-income housing buildings in major disaster areas declared by the President. A memorandum from the Chief Counsel of the IRS states the law: “A building (1) that is beyond the first year of the credit period and (2) that, because of a disaster that led to a major disaster declaration, has suffered a reduction in qualified basis that would cause it to be subject to recapture or loss of credit, will not be subject to recapture or loss of credit if the building’s qualified basis is restored within a reasonable restoration period.” The compliance monitoring agency with §42 for a given building designates what the reasonable restoration period should be. The period cannot exceed 24 months after the calendar year in which the President declares a major disaster for the location. The building owner must restore the building within that period or face penalties: loss of all credit claimed during the restoration period and recapture for any previous years of claimed credit under the stipulations of §42(j)(1). “This means that owners can continue claiming credits for casualty situations in designated disaster areas,” says Greg Proctor, Vice President of Affordable Housing So...