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Tax-Exempt Bonds
Bond Financing
Tax-exempt bonds are bonds whose interest payments are not subject to federal income tax. These tax-exempt bonds are typically issued by municipal, county or state governments, whose interest payments are not subject to federal income tax, and sometimes also state or local income tax. Bonds that were not issued by the federal government, your state government, or a local government within your state, have taxable interest on both your federal and state tax returns. Bonds issued by your state or county, city or other municipality within your state, are tax-exempt on your federal and state tax return. Tax-Exempt Bond Financing usually features below-market interest rate.
How Can Tax-Exempt Bonds Be Used?
Tax-Exempt Multifamily Bond financing can be used for the construction, acquisition and rehabilitation of affordable rental housing. Usually, Tax-Exempt Multifamily Bonds require a percentage of the total units reserved for low-income residents.
Can Tax-Exempt Bonds Be Used With LIHTCs?
Low Income Housing Tax Credits (LIHTCs) can be combined with Tax-Exempt Multifamily Bonds if more than 50% of a project is financed with Tax-Exempt Multifamily Bonds, the project may access the 4% Low Income Housing Tax Credit without competing for an allocation.
Why Use Tax-Exempt Bonds With LIHTCs?
Using Tax-Exempt Multifamily Bonds with Low Income Housing Tax Credits (LIHTCs), allows developers to combine low interest rates on long term debt with a substantial equity contribution from an allocation of LIHTCs. Therefore bringing more equity to the project.
How Are LIHTCs Obtained?
Projects usually must submit a separate LIHTC application and score a minimum number of points on the Qualified Allocation Plan implemented by the Housing Agency.
What Are Tax-exempt 501(c)(3) Bonds?
Nonprofit 501(c)(3) bonds can be used to finance housing projects wholly owned by a 501(c)(3) organization, as long as the project fits within the charitable purpose of the organization.
What Are 501(c)(3) Bonds Advantages?
These bonds are not subject to annual Bond Cap limitations and cannot be combined with the LIHTCs. However, nonprofit 501(c)(3) bonds are less restrictive regarding the types of units allowed.


 
 
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