Housing Industry Relief ?

Recently, I was speaking with Scott Malof of the Cincinnati office of SS&G Financial Services and Scott reminded me that on July 30, 2008 President Bush signed into law the Housing and Economic Recovery Act of 2008 (H.R. 3221). While there are several important aspects of H.R. 3221, most of the attention has been centered on the new First-Time Homebuyer Tax Credit which will function to give first time homebuyers a temporary refundable tax credit equal to 10 % of the purchase price of a home, up to $7,500 ($3,750 for married individuals filing separately). The tax credit will phase out for married taxpayers filing jointly with adusted gross income in excess of $150,000 ($75,000 for individual returns). The credit will remain effective for home purchases occuring after April 9, 2008 and before July 1, 2009. However, the taxcredit is not free money; it must be repaid to the government over 15 years. So, essentially the tax credit is an interest free loan from the government for first time homebuyers.

Among several other notable componants of H.R. 3221 it also addresses changes to the low-income housing tax credit (LIHTC), tax-exempt housing bonds and mortgage revenue bonds to name a few. The tax credits are being paid for through changes to reportable interest expense, application of gains from the sale of principal residences and acceleration of certain corporate estimated tax payments.

Given the how complicated the application of the benfits of H.R. 3221 is for individual taxpayers, the residential development community is disappointed that the tax credits were not given directly to the development community which could have used the same as reductions in sale prices. Nevertheless, if this industry incentive is going to have a meaningful impact, lenders and developers are going to have to educate their borrowers and buyers about how to take advantage of the benefits of the tax credits; and of course, tax advisors will need to create new strategies for their clients on how to adjust for the revenue offsets.

Is Your Development Complying with the Interstate Land Sales Full Disclosure Act ?

As the development market slows contract purchasers will look for creative ways to get out of purchase contracts. Did you consider the Interstate Land Sales Full Disclosure Act (”ILSA”) 15 U.S.C. 1702 (a) when programming your development project ?

The ILSA is a federal consumer protection statute which the U. S. Department of Housing and Urban Development administers which requires disclosures and contract provisions relating to the sale of land, including commercial, industrial and residential subdivisions, townhome developments and condominium projects.

Compliance is time consuming and costly. So developers will want determine if their projects qualify for one of the several full or partial exemptions to compliance with the ILSA provisions. There are two (2) popular exemptions: (i) “Improved Lot exemption” which is a promise of the developer to complete the project within 2 years of the date of the contract to sell a unit to a consumer; and (ii)"fewer than 100 units" exemption.

Failure to comply can be costly. The ILSA provides statutory remedies to contract purchasers of return of earnest money deposits, monetary damages and specific performance. Much of the reported case law emanates from Florida. However, there is a line of cases from the 6th Circuit. Avoid the headaches and plan accordingly. Discuss the ILSA and its application to your project with your real estate counsel.

Ohio H.B 554 Signed into Law

On June 12, 2008 Governor Ted Strickland signed into law Ohio H.B. 554 making changes to the Ohio Historic Rehabilitation Tax Credit ("OHRTC"). The OHRTC is a credit against the Ohio income tax, corporate franchise tax and some intangibles taxes. One of the changes that H.B. 554 is responsible for will enable each party awarded with the OHRTC up to $5 million per year in tax credits against qualified expenditures. The prior limitations of $60 million per year in OHRTC awards and the cap on the number of applications which can be submitted have been eliminated. H.B. 554 requires the Director of Development to "consider the potential economic impact and regional distributive balance of the credits throughout the state" when reviewing applications. It is hoped that this will allow for more even distribution of the tax credits throughout Ohio. For more information on the OHRTC program and its availability you should speak with your tax professional or an attorney who has tax credit development experience.