Maine Enacts Affordable Housing Tax Credit
On January 12, 2020, Governor Janet Mills signed L.D. 1645, establishing a Maine affordable housing tax credit (AHTC). The Maine State Housing Authority (MaineHousing) will be tasked with administering and allocating $80 million of credits to affordable rental housing developers between 2021 and 2028, with up to $10 million allocated each year. Any unused allocation can be carried forward to later years.
The Governor’s State of the State address touted the credit as aiming to create nearly 1,000 additional affordable housing units over eight years and increasing Maine’s current rate of production by 50%.
The AHTC is modeled on Maine’s existing historic preservation tax credit as well as certain aspects of the federal low income housing tax credit. Like the historic preservation credit, the AHTC is available for both income and insurance premiums taxpayers, and importantly, is fully refundable, meaning an investor need not have Maine tax liability in order to benefit from the credit. Furthermore, the credit can be allocated among partners or co-owners of an affordable housing project.
Eighty percent of the credits are available for “qualified Maine projects,” which means new construction or rehab of existing buildings that have not been used for residential purposes, that are subject to a restrictive covenant requiring 60% of the units to be rented to tenants with household income at or below 50% of area median gross income, and that are eligible for the 30% present value federal credit because they utilize tax-exempt financing.
Like the federal credit, the amount of the AHTC is tied to project costs. At a very high level, (1) for affordable housing projects funded by tax-exempt bonds, the Maine AHTC equals the federal low-income housing tax credit; and (2) for other projects, the AHTC is 50% of qualified basis, up to $500,000 for a single affordable housing project. No more than 20% of the credits can be used for projects that do not utilize tax-exempt financing.
An affordable housing project must maintain a level of qualification for 45 years from the date the project is placed in service. A project that does not restrict 60% of its units to households with incomes at or below 50% of the area median gross income, or qualify as a qualified rural development preservation project, for 15 years after being placed in service must repay a portion of the AHTC.
Ten percent of the AHTC allocation in any year is set aside for rural development preservation projects. In addition, MaineHousing must target at least 30% of the AHTC to be allocated to senior housing and 20% of the AHTC to be allocated to housing in rural areas.