Tax Law Insights

The South Carolina General Assembly passed the Workforce and Senior Affordable Housing Act on May 12, 2020, and the Act was signed into law by the Governor on May 14, 2020.  The Act is effective for qualified projects placed in service after January 1, 2020 and before December 31, 2030.

The Act provides a state tax credit against income taxes, bank taxes, corporate license fees, and insurance premium taxes in an amount equal to the federal low income housing tax credit allowed with respect to a qualified project.  The broad array of creditable taxes should make the credits attractive to large pool of potential equity investors.  If the federal low income housing tax credit is recaptured, a proportionate amount of the state low income housing tax credit is also recaptured.  The credit is not refundable but can be carried forward for five years (carrybacks are not permitted).  Credits are specifically authorized to be allocated among owners in any manner agreed to by the owners, and can be allocated differently federal low income housing tax credit allocations.

The SC State Housing Finance and Development Authority (SC Housing) is the South Carolina state agency responsible for allocating federal low income housing tax credits, and will also be responsible for certifying that a project is eligible for the state low income housing tax credit and the amount of the state credit.  SC Housing is authorized to establish eligibility criteria, and must include consideration of local support for a project.  Projects will be required to provide a report to SC Housing detailing how the state credit will benefit the tenants of a project (e.g. reduced rent), or why the state credit is necessary to undertake a project.  Guidance from SC Housing will be forthcoming in the future.

The Act provides a major boost to affordable housing projects in South Carolina, particularly projects utilizing tax-exempt bond financing and 4% low income housing tax credits.  For example, SC Housing administers a Multifamily Tax-Exempt Bond Finance Program to provide tax-exempt bond financing for qualifying projects, in order to alleviate the lack of decent, safe, and sanitary housing available to individuals of the beneficiary classes who are unable to pay rental amounts for such housing.  The proceeds of the bonds can be used to make loans to housing sponsors to fund land acquisition costs and construction, rehabilitation and equipping costs for new or existing multifamily projects, as well as debt service reserves and issuance costs.  Such bonds may be privately placed with one or more banks or financial institutions or publicly offered through an underwriter, but in either event are generally secured by a pledge of collateral security such as a mortgage, letter of credit or guaranty, as well as cash flows of the project.  With the additional equity provided by the state low income housing tax credit many more projects may pencil out.