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Jim Kroger, CPA Wayne Michael, CPA
www.novoco.com/products
www.novoco.com/events
(415) 356-7970
LIHTC Conferences
San Francisco Miami Jan 12-13 Las Vegas New Orleans May 17-18Asking tax credit questions
Play-by-play
Wayne Michael, CPA
Director of Education and Business Development
Wayne Michael, CPA
Director of Education and Business Development
Color commentary/analysis
Jim Kroger, CPA
Partner – San Francisco Office
Jim Kroger, CPA
Partner – San Francisco Office
Instructors:
Earning CPE Credit
Overview
Overview
333
Total project costs, fixed assets and eligible basis Total project costs
Total project costs, fixed assets and eligible basis
Total project costs
Fixed assets
Eligible basis
Total project costs, fixed assets and eligible basis
SL Commercial bldg SL Commercial bldg Eligible Eligible Residential rental building Site work Personal property 150% DB 200% DB SL Ineligible Ineligible Land Land
Total project costs, fixed assets and eligible basis SL Commercial bldg Eligible Eligible Residential rental building Site work Personal property 150% DB 200% DB SL Ineligible Ineligible Off-site improvements Land Commercial Personal Property
Total project costs, fixed assets and eligible basis
Total project costs
Fixed assets
Eligible basis
Soft Costs
Interest, utilities
Soft Cost Capitalization
Soft Cost Capitalization
Purchase price Tune up New paint Taxes/fees
Total cost of asset
$ 15,000 800 2,000 1,700 $ 19,500 Taxes/Fees
Contractor Invoices “Hard Costs” Architectural Fee Security Utilities Developer Fees
Interest Just like our example with the
van, non “hard” costs paid (or payable) also get capitalized to the fixed assets.
Sometimes
Always
Never
Capitalization of soft costs:
Indirect
Other Direct
Direct Soft Costs
• Existbecause ofdevelopment (directly related)
• 100% capitalizable to fixed assets
Examples:
• Architectural fees • Engineering fees • Developer fees
• Local development impact fees • Building permits
• Market studies
Other Soft Costs
• Not related to construction, whether incurred during construction period or not
• Nevercapitalized to fixed assets
Examples:
• Organization cost amortization • Marketing
• Partnership management fees • Syndication costs
• Permanent loan fees • Reserves
Indirect Soft Costs
• Can exist before, during and after construction period (indirectly related) • Portion incurred during construction is
capitalized; otherwise expensed
Examples:
• Interest • Insurance • Taxes
• Letter of credit fees
• Amortization of bond issuance costs and amortization of construction loan origination fees
Purchase price
Tune up
New paint Taxes/fees Total cost of asset
$ 15,000 800 2,000 1,700 $ 19,500 Repairs EXPENSE $800 Registration Renewal
Placed in service
Placed in service
Placed in service Utilities Utilities Placed in service Interest Interest
Placed in service
“Production Period” IRC § 263A(f)(1)(A) Planning & Design
Reg §1.263A-12(f)
Placed in service
“Production Period” IRC § 263A(f)(1)(A)
Amortization of Intangible Assets
• Intangible assets – assets that are not tangible but provide
economic benefits through the rights and privileges associated with their possession
• Intangible assets have lives independent of the lives of fixed assets • Amortization of certain intangible assets is part of indirect soft costs
and is capitalized to fixed assets • Capitalizable:
– Bond issuance costs, construction loan fees, other financing
Amortization of Intangible Assets
• Intangible assets – assets that are not tangible but provide
economic benefits through the rights and privileges associated with their possession
• Intangible assets have lives independent of the lives of fixed assets • Amortization of certain intangible assets is part of indirect soft costs
and is capitalized to fixed assets • Capitalizable:
– Bond issuance costs, construction loan fees, other financing
• NOT Capitalizable
$250,000
Example: BIC of $250,000; 30-year bond term
2 years 28 years
Capitalized
Bonds Issued PIS
Bond Issuance Costs
$200,000
$50,000
Bond Issuance Costs
Example: BIC of $250,000; 30-year bond term2 years 28 years
PIS
$250,000
2 years 28 years
$16,667 $233,333
Capitalized Expensed
Bond Issuance Costs
Example: BIC of $250,000; 30-year bond termHOME Loan Fees
Bond Issuance Costs
PIS
Org Costs
Permanent Loan Fees Constr. Loan Fees
Interest capitalization
is a little different.
Balance x Int R ate Capitalized Expensed Interest Capitalization Construction Loan New ConstructionNew Construction PIS Date Balance x Int R ate Capitalized Expensed Bond Loan Expensed Interest Capitalization PIS Date Balance x Int R ate Capitalized Expensed Acq/Rehab Capitalized Acq Rehab Interest Capitalization Construction Loan
Bond Loan PIS Date Balance x Int R ate Capitalized Expensed Capitalized Acq Rehab Expensed Interest Capitalization Acq/Rehab
And finally, before moving away
from soft cost capitalization…
Jan 1 Dec 31 PIS May 31 Jun 29 PIS Aug 14 PIS
Placed in Service: Multiple Buildings
25% 30% 45% Jan 1 Dec 31 PIS May 31 Jun 29 PIS Aug 14 PIS
Jan 1 Dec 31 PIS May 31 Jun 29 PIS Aug 14 PIS
Placed in Service: Multiple Buildings
25% 30% 45% 25% 75% 55% 45%
Proper Classification of
Fixed Assets
Proper Classification of
Fixed Assets
Demolition Land LIHTC Search
Eligible Basis
Land = $350,000 $50,000 Building = $2,000,000 Eligible Basis Demolition Costs Building = $2,050,000 $50,000 Eligible Basis Demolition Costs
Land = $300,000 Building = $2,050,000 $50,000 Eligible Basis Demolition Costs Relocation Costs Land = $350,000 $50,000
$30,000
Building = $2,030,000
$30,000 = “Land Improvement”
Land vs. Land Improvements
“inextricably associated”
Eligible Basis
Sewer 333
Total project costs, fixed assets and eligible basis Total project costs
Site work
Off-site improvements
Sewer 333
Total project costs, fixed assets and eligible basis Total project costs
February 8:
February 29:
Novogradac Search
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Jim Kroger, CPA Wayne Michael, CPA
