Benefits of low-income housing reduced, but those of REITs increased by the new law

Article Abstract:

The Tax Reform Act of 1986 eliminates many of the tax benefits associated with investing in low-income housing, while real estate investment trusts (REIT) receive favorable treatment. The rehabilitation costs for low-income rental housing can no longer be depreciated over 60 months. This depreciation is replaced by a tax credit which may be claimed over 10 years in maximum annual amounts of 4 to 9 percent. The qualification criteria for the credit and the recapture rules for this credit are discussed. The requirements for REITs have been relaxed: a REIT does not have to meet the minimum 100-shareholder test in its first year if the personal stock holding requirement is met. The definition of rent income has also been relaxed under the new law.

Interpretation and construction, Tax law, Real estate investment trusts

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Real estate now subject to at-risk rules; rehab credit reduced by Tax Reform Act

Article Abstract:

The Tax Reform Act of 1986 will make a number of changes in the area of real estate taxation. At-risk rules have been extended to real estate investments in order to prevent artificially inflated deductions and tax benefit transfers to taxpayers with little or no equity in the taxable property. The rehabilitation tax credit (related to restoration of old buildings) has been reduced and the eligibility qualifications for this credit have become stricter. The Act also establishes the new guidelines that a cooperative housing corporation must meet in order to qualify for itemized deductions related to real estate taxes and interest.

Finance, taxation, & monetary policy, Buildings, Real estate investment, Real estate investments, Remodeling and renovation, Real property tax, Real property taxes

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Availability of low-income housing credit amplified by regulations

Article Abstract:

Requirements to qualify for the low-income housing tax credit have been issued by the IRS. The Tax Reform Act of 1986 allows the credit to be claimed on an annual basis over a ten-year period. Low income housing must meet one of two tests: 20% of the units in a housing project must be rent-restricted and occupied by persons whose income is 50% or less of the area gross median income, or 40% of the units must be rent-restricted and occupied by individuals whose income is 60% or less of the area gross median income. Filing procedures for claiming the low income housing credit are discussed.

Housing, Low income housing tax credit

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