Complex. Nuanced. CPA Thomas Gioia uses these words to describe the rules of the Low Income Housing Tax Credit (LIHTC) program – and to explain why you need an accountant to employ the program successfully.
We spoke with Gioia, a managing partner at Otis/Atwell CPAs in South Portland, Maine, about Housing Tax Credits and his 30-plus years working with the affordable housing industry.
Why would someone need an accountant when dealing with Housing Tax Credits?
The rules and regulations governing the program are complex and nuanced. Having professional guidance during the development process is prudent. In all honesty, it would be practically impossible to do without accounting expertise.
Who are your clients?
We provide services for profit and nonprofit developers of multifamily affordable housing properties, as well as for syndicators (or funders) of multifamily properties, such as NNEHIF.
What are some common pitfalls in the beginning stages of development?
One frequent mistake is not documenting the early costs expended so that they can be included in the final credit certification. There may be hundreds of thousands of dollars in pre-development expenses prior to the loan closing, such as architect drawings and other soft costs. Once you get the loan closing, then the records are submitted to get reimbursed for the construction loan, but you’ll see a “leakage of benefits” if you don’t have a good accounting system right from the get-go. Development record keeping is critical, so we recommend that developers call an experienced accountant as early in the process as possible.
Another pitfall is to get too deep into a proposal when it’s clear that the town you want to build in is not receptive to the project. Time and time again I’ve seen people spend a lot of money trying to push permitting through before they decide to cut their losses.
For us, the most critical time is when the building is about to open and our client has a giant construction loan outstanding that’s going to be taken out with equity and capital from NNEHIF. This is when we step in to make a cost certification as quickly as we can, so that we can help cut back the interest expense of the loan. Otis/Atwell has been involved in the affordable housing space for years, so all of the agencies and housing authorities know us well; we usually submit the cost certification 3-4 days from the time we get all the records.