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Apartment complexes built with the state’s Low-Income Housing Tax Credit Program (LIHTC) are virtually indistinguishable aesthetically from their market-rate neighbors.

That’s great for the communities they seamlessly blend into. But for local tax appraisal districts unfamiliar with this successful public-private housing program, the drastic differences are causing headaches when it comes time to set the taxable value for these rent-stabilized apartments.

For example: Two apartment complexes share the same block. To the average person walking or driving by, these complexes look the same and so do the tenants. The major difference however, is in how the properties were financed, how that affects their potential income and how they should be taxed. Most importantly, LIHTC properties are the only rent-capped income properties in the state of Texas, and few if any, understand the drastic affect these deed-restricted rent caps have on their values.

One of the apartment complexes is a market rent development, financed conventionally with a mortgage loan. The other complex is an affordable development, financed with different sources of funds, including housing tax credits and a mortgage loan. Using housing tax credits as a portion of a development’s equity financing allows the “affordable” development to have a smaller mortgage loan than its “market-rate” neighbor, so it must charge lower rents.

Because one complex charges market-rate rents and the other charges lower, capped rates, the revenue generated is substantially different. How should the tax appraiser treat these properties?

The complexes cost about the same to build. If the properties were appraised based on their location and building costs, their appraised values would be about the same. But if the properties were appraised based on their net income, the affordable development would receive less rent and, therefore, pay less tax.

“When housing tax credit developments are overvalued, the owners are forced to litigate the value on an annual basis,” said Frank Jackson, executive director of the Texas Affiliation of Affordable Housing Providers. “Setting and publishing clear guidelines for the appraisal of affordable housing properties financed with tax credits will save everyone the time and trouble of setting tax values through litigation.”

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