Changes to the HTC included in the Housing and Economic Recovery Act of 2008

1. Advocacy UpdateUsing Historic Tax Credits in New York CityWednesday, June 24, 20095:00 pmNew York Athletic Club - New York, New York

2. Background and Purpose. In July, 2008, Congress made positive changes to the Historic Tax Credit for the first time since its enactment in 1981 including: Permitting use of the HTC to offset the Alternative Minimum Tax and providing a way to efficiently address the needs of small urban and rural deals An increase from 35-50% of the allowable leasing to tax-exempt entities before triggering complicated and costly disqualified lease rules A requirement that state HFAs include priorities for HTC transactions in allocating the Low-Income Housing Tax Credit through their Qualified Allocation Plans. A roll back of changes to the OCC’s Part 24 regulations that makes it easier for national banks to invest equity in HTC transactions. Changes to the HTC included in the Housing and Economic Recovery Act of 2008 Legislation

3. HTC AMT Offset Article Availablewww.ntcicfunds.comwww.novoco.com Impact of H.R. 3221: The Housing and Economic Recovery Act of 2008 on Individual Rehabilitation Tax Credit Investors (Making Small Rehabilitation Tax Credit Deals Work) Executive Summary The federal historic tax credit has been difficult to use on small Main Street-scale rehabilitation projects because the transaction costs are high and investor interest in these “mom and pop” deals has been very low. Recent federal legislation provides a simpler, less costly approach to attracting investor equity to these projects without the need to involve out-of-town lawyers, accountants and investors. Now local developers who intend to rehabilitate small buildings generating small amounts of credits, and who qualify as “real estate professionals” under IRS regulations, can take the credits themselves and use the credits to lower their Alternative Minimum Tax (AMT). Developers or property owners who do not qualify as real estate professionals can work with their local accountant to identify an individual who is both a real estate professional and subject to AMT. Through the formation of a limited partnership or limited liability company, this investor can be made a transaction partner for purposes of paying the property owner cash in exchange for the right to use the credits. Legislation

4. A person who: Spends more than 50% of their time and more than 750 hours per year in Real Estate activities. Must be an owner (at least 5%) in the real estate business that they provide their personal services to. What Are the New Rules?Who is a Real Estate Professional? Legislation

5. What Are the New Rules?What are Real Estate Activities? Examples of “Real Property Trades or Businesses”: Real Estate Developers Construction Contractors Property Managers Real Estate Brokers Leasing agents Architects Legislation

6. What Are the New Rules? Or If Not– Bring in REP as Investor Local Real Estate Professional (Investor) Property Owner/Developer Equity Equity Tax credits & % of Profits % of Profits Property Ownership LLC .01% owned by building owner 99.99% owned by REP Rent Tenant Legislation

7. HTCC Board Members Brian Cave DFC Group Holland and Knight Nixon Peabody Novogradac & Company NTCIC Transcapital US Bank HTCC Membership Legislation

8. HTCC Members Alexander Company Bank of America Clark Hill, PLC Farris Matthews Foss and Company Heritage Consulting Historic Restoration, Inc. Kasper Mortgage MacRostie Historic Advisors, LLC Plante Moran Polsinelli Shugart Reznick Group Tax Credit Capital Wisconsin Preservation Fund, Inc HTCC Membership Legislation

9. 2009 Legislative ProposalsHistoric Tax Credit Coalition Legislative Priorities • Amend Section 47 of the Code: • to increase the HTC credit rate from 20% to 30% for smaller projects. Small project redefined as QREs $5MM or less. • to allow the 10% credit to be used for residential rental housing. • to make all buildings older than 50 years eligible for the 10% rehabilitation credit. • to eliminate all disqualified lease rules (except for the sale leaseback) that currently preclude the use of the HTCs on properties where nonprofits or government agencies rent more than 50% of the leasable space. • To provide transferability of the credit (sale of the credit as a certificate) for deals under $5 million in QREs. Legislation

10. 2009 Legislative ProposalsHistoric Tax Credit Coalition Legislative Priorities • Amend Section 47 to allow for moderate rehabilitation by reducing the substantial rehabilitation test to 50 percent of adjusted basis. • Enact a Green “add on” Credit, formulated with the National Trust for Historic Preservation. • Ensure that state historic preservation tax credit proceeds are not counted as federal income and taxed by the Internal Revenue Service. Legislation

11. 2009 Legislative ProposalsHistoric Tax Credit Coalition Regulatory Priorities • Ask Congress to provide guidance to the NPS to allow green technology improvements to properties that also earn the federal historic tax credit. • Ask Congress to provide guidance to the IRS on its implementation of the easement reforms of 2006. • Exempt the HTC from the Codification of Economic Substance. Legislation

12. NTCIC Contacts John Leith-Tetrault President, NTCIC 202-588-6064 jleith@ntcicfunds.com