Technical Information Release  TIR 24-16: Tax Credit Provisions in the Affordable Homes Act

Date:	11/26/2024
Referenced Sources:	Massachusetts General Laws

I. Introduction

This Technical Information Release (“TIR”) explains certain provisions included in “An Act Relative to the Affordable Homes Act” (the “Affordable Homes Act”)^[1] that pertain to credits available to taxpayers subject to the income tax, G.L. c. 62, and the corporate excise, G.L. c. 63.  

The following provisions are discussed in this TIR:

• New Massachusetts Homeownership Credit
• New Qualified Conversion Project Credit
• Changes to the Historic Rehabilitation Credit
• Changes to the Community Investment Credit

II. New Massachusetts Homeownership Credit

The Affordable Homes Act establishes a Massachusetts Homeownership Credit for taxpayers subject to tax under G.L. c. 62 or G.L. c. 63 in relation to a qualified homeownership development project^[2] to the extent authorized by the Executive Director of the Massachusetts Housing Finance Agency (“MHFA”).^[3]  See G.L. c. 62, § 6O and G.L. c. 63, § 38PP.  The credit is non-refundable but is transferrable.^[4]

A sponsor^[5] must submit an application to MHFA to be awarded a credit.^[6]  MHFA competitively evaluates and approves such applications and authorizes credits based on various metrics and criteria established by MHFA.^[7]  The amount of the credit authorized by MHFA cannot exceed the maximum credit amount, which is 35% of the lesser of either: (1) the project’s total qualified project expenditures^[8] calculated on a per single-family dwelling basis; or (2) 80% of the area median new single-family dwelling sales price, subject to further limitations established by MHFA.^[9]  A sponsor cannot claim the credit before the first tax year stated on the eligibility certificate issued to the sponsor by MHFA.^[10]  MHFA will issue an eligibility certificate to a sponsor when (1) the sponsor’s qualified homeownership development project has been completed; (2) all single-family dwellings that are required to be sold to qualified buyers^[11],^[12] have been sold; and (3) MHFA has approved the sponsor’s final qualified project expenditures.^[13]

The credit may be transferred in whole or in part to any individual or entity, as long as the transferor provides to the Commissioner of Revenue (“Commissioner”) a statement that describes the amount of the credit to be transferred, sold, or assigned.^[14]  Where a sponsor seeks to transfer the credit, it must also provide to the Commissioner appropriate information for the proper allocation of the tax credit.^[15]

Any amount of the credit that exceeds the tax due for a taxable year may be carried forward for the duration of the qualified homeownership development project’s affordability period, which is a 10-year period that begins as of the date of the first sale of a single-family dwelling that was constructed as part of the project.^[16]

The amount of credits that MHFA can authorize annually cannot exceed the sum of (1) $10,000,000; (2) any credit amounts not authorized in the preceding taxable year; and (3) any credits returned to MHFA by a sponsor.^[17]  Effective January 1, 2030, the amount of credits that can be authorized annually is the sum of (1) any credit amounts not authorized in the preceding taxable year; and (2) any credits returned to MHFA by a sponsor.^[18]

The credit is subject to recapture if MHFA determines that a sponsor or qualified homeownership development project does not qualify for the credit, ceases to qualify for the credit, or did not qualify for the credit at the time they claimed the credit.^[19] In such circumstances, the Commissioner will determine the taxpayer who claimed the credit, the tax to which the credit was applied, and the amount of credit to be recaptured.^[20]  Notwithstanding the time limitations on issuing an assessment under G.L. c. 62C, the Commissioner will make an assessment against the taxpayer to recapture the credit.^[21]

The credit will be attributed on a pro rata basis to the owners, partners, or members of the legal entity entitled to the credit and shall be allowed as a credit against the tax due from such owners, partners or members in a manner determined by the Commissioner.^[22]

The credit is available for taxable years beginning on or after January 1, 2025.^[23]

III. New Qualified Conversion Credit

The Affordable Homes Act establishes a Qualified Conversion Credit that is available to taxpayers subject to tax under G.L. c. 62 or G.L. c. 63 in relation to a qualified conversion project^[24] that has been certified by EOHLC.^[25]  See G.L. c. 62, § 6(ee) and G.L. c. 63, § 38OO.  To claim the credit, a sponsor^[26] must submit a project proposal to EOHLC requesting the certification of a housing development project as a qualified conversion project.^[27]  After certifying the project, EOHLC determines the amount of credit awarded to the sponsor, which cannot exceed 10% of the qualified conversion’s project’s development costs.^[28], ^[29]

The credit is allowed for the taxable year in which EOHLC notifies the Commissioner of the certified qualified conversion project’s completion.^[30]  For purposes of determining the credit, a certified qualified conversion project’s development costs are treated as if they were incurred on the date that EOHLC notifies the Commissioner of the project’s completion and provides data related to the development costs.^[31]  The credit is not refundable, but any amount of the credit that exceeds the tax due for a taxable year may be carried forward to any of the 10 taxable years subsequent to the taxable year that the credit was allowed.^[32]

The credit may be transferred to any individual or entity subject to tax under G.L. c. 62 or G.L. c. 63, as long as the transferor provides prior notice to the Commissioner.^[33]  Once transferred, the transferee may apply the credit as if it had incurred the qualified conversion project’s development costs itself.^[34]  If the sponsor is a partnership or a limited liability company taxed as a partnership, the credit, if transferred, must be transferred by the partnership or the limited liability company.^[35]  Credits passed through to individual partners and members cannot be transferred.^[36]  If the credit is allowed to a partnership, limited liability company taxed as a partnership or multiple owners of property and is not transferred, the credit is passed through to the persons designated as partners, members or owners, respectively, pro rata or pursuant to an executed agreement among the persons designated as partners, members, or owners documenting an alternative distribution method without regard to their sharing of other tax or economic attributes of the entity.^[37]

EOHLC may revoke the certification of a project if it determines that the representations made by a sponsor in its project proposal are materially different from the sponsor’s conduct after the project’s certification or if the project no longer satisfies the qualified conversion project program’s requirements.^[38]  In the event of such a revocation, the Commissioner will recapture the credit.^[39]

The credit is available for taxable years beginning on or after January 1, 2025^[40] and ending on or before December 31, 2029.^[41]

IV. Changes to the Massachusetts Historic Rehabilitation Credit

The Massachusetts Historic Rehabilitation Credit, which allows taxpayers subject to tax under G.L. c. 62 or G.L. c. 63 to claim a credit for certain expenditures made to rehabilitate certain qualified historic structures, was due to expire on December 31, 2027.^[42]  The Affordable Homes Act amends G.L. c. 62, § 6J and G.L. c. 63, § 38R to extend the credit to taxable years ending on or before December 31, 2030.^[43]

Effective for taxable years beginning on or after January 1, 2024, the Affordable Homes Act also raises the credit’s annual limit from $55,000,000 to $110,000,000.^[44]

V. Changes to the Community Investment Credit

The Massachusetts Community Investment Credit, which allows taxpayers subject to G.L. c. 62 and G.L. c. 63 to claim a credit for cash contributions made to a community partner to support implementation of its community investment plan, or to a community partnership fund, was due to expire on December 31, 2025.^[45]  However, the Affordable Homes Act makes the credit permanent.^[46]

Effective for taxable years beginning on or after January 1, 2025, the Affordable Homes Act also raises the credit’s annual limit, previously set at $12,000,000 for taxable years 2023 through 2025, to $15,000,000.^[47]

                                                                                    /s/Geoffrey E. Snyder
                                                                                    Geoffrey E. Snyder
                                                                                    Commissioner of Revenue
 

GES:RHF:db

November 26, 2024

TIR 24-16

[1] St. 2024, c. 150, signed into law on August 6, 2024.

[2] A qualified homeownership development project is a project to develop for sale single-family dwellings in Massachusetts that satisfies any qualifications established by MHFA with the approval of the Executive Office of Housing and Living Communities   The project must: (1) involve the new construction of at least 10 single-family dwellings; (2) be located in an eligible location; and (3) result in at least 20% of the single-family dwellings being sold to qualified buyers, subject to an affordability restriction in accordance with criteria established by MHFA.  See G.L. c. 62, § 6O(a); G.L. c. 63, § 38PP(a).

[3] The Affordable Homes Act, §§ 21, 26.

[4] G.L. c. 62, § 6O(b)(2), (f)(1); G.L. c. 63, § 38PP(b)(2), (f)(1).

[5] A sponsor is any individual, firm, association, partnership, including a limited partnership, trust, corporation, and other legal entity, including a public body as well as a natural person, that sponsors or owns a qualified homeownership development project.  See G.L. c. 23B, § 25; G.L. c. 62, § 6O(a); G.L. c. 63, § 38PP(a).

[6] G.L. c. 62, § 6O(b)(3); G.L. c. 63, § 38PP(b)(3).

[7] G.L. c. 62, § 6O(c)(1); G.L. c. 63, § 38PP(c)(1).

[8] Qualified project expenditures include any expenditure directly related to the construction of a qualified homeownership development project, including, but not limited to, the cost of acquiring land, site assessment and remediation of hazardous materials, subject to further specification by MHFA.

[9] Id.

[10] G.L. c. 62, § 6O(b)(2); G.L. c. 63, § 38PP(b)(2).

[11] At least 20% of the single-family dwellings being sold must be sold to qualified buyers. G.L. c. 62, § 6O(a); G.L. c. 63, § 38PP(a).

[12] A qualified buyer is an individual that is a first-time homebuyer with an annual income not exceeding 120% of the area median income, as determined by the United States Department of Housing and Urban Development, for the location in which the single-family dwelling being purchased is located, and who satisfies any additional qualifications established by MHFA.  See G.L. c. 62, § 6O(a); G.L. c. 63, § 38PP(a).

[13] G.L. c. 62, § 6O(d)(1); G.L. c. 63, § 38PP(d)(1).

[14] G.L. c. 62, § 6O(f)(1)-(2); G.L. c. 63, § 38PP(f)(1)-(2).

[15] G.L. c. 62, § 6O(f)(2); G.L. c. 63, § 38PP(f)(2).

[16] G.L. c. 62, § 6O(b)(2); G.L. c. 63, § 38PP(b)(2).

[17] G.L. c. 62, § 6O(b)(1); G.L. c. 63, § 38PP(b)(1).

[18] The Affordable Homes Act, §§ 22, 27, 142.

[19] G.L. c. 62, § 6O(g); G.L. c. 63, § 38PP(g).

[20] Id.

[21] Id.

[22] G.L. c. 62, § 6O(i); G.L. c. 63, § 38PP(i).

[23] The Affordable Homes Act, § 140.

[24] A qualified conversion project is the rehabilitation of a commercial property, including, but not limited to, commercial centers, office parks and commercial buildings located on main streets or downtown municipal areas, for primary multi-unit residential use or mixed-use, which may include retail or other commercial use.  In particular, the project must (1) contain not less than 2 residential units, although the project may be a mixed-use development that includes commercial uses in addition to residential units if the building is primarily residential; (2) upon completion of the rehabilitation, consist of at least 80% residential units that are priced consistently with prevailing rents or sale prices in the municipality as determined by EOHLC and which are to be sold or leased; (3) have constituted nonresidential real property, as defined in Internal Revenue Code (“Code”) § 168  prior to conversion, all or a portion of which was leased, or available for lease, to office tenants; and (4) have been initially placed into service at least 5 years before the beginning of the conversion.  G.L. c. 23B, § 36.

[25]The Affordable Homes Act, §§ 5, 17, 21.

[26] A sponsor is an individual, firm, association, partnership, including a limited partnership, trust, corporation, and other legal entity, including a public body as well as a natural person.

[27] G.L. c. 23B, § 36(c)(1).

[28] Development costs are expenditures directly related to the construction or substantial rehabilitation of a qualified conversion project, including, but not limited to, the cost of site assessment and remediation of hazardous materials.  The purchase of the property is not a development cost for purposes of the credit. See G.L. c. 62, § 6(ee)(1); G.L. c. 63, § 38OO(a).

[29] G.L. c. 23B, § 36(g); G.L. c. 62, § 6(ee)(2); G.L. c. 63, § 38OO(b).

[30] G.L. c. 62, § 6(ee)(2); G.L. c. 63, § 38OO(b).

[31] Id.

[32] G.L. c. 62, § 6(ee)(3), (4); G.L. c. 63, § 38OO(c), (d).

[33] G.L. c. 62, § 6(ee)(3); G.L. c. 63, § 38OO(c).

[34] Id.

[35] G.L. c. 63, § 38OO(c).

[36] Id.

[37] Id.

[38] G.L. c. 23B, § 36(f)(1).

[39] G.L. c. 62, § 6(ee)(5); G.L. c. 63, § 38OO(e).

[40] The Affordable Homes Act, § 140.

[41] The Affordable Homes Act, § 137, 142.

[42] G.L. c. 62, § 6J(i) and G.L. c. 63, § 38R(i).

[43] The Affordable Homes Act, §§ 18, 23.

[44] The Affordable Homes Act, §§ 19, 24, 141.

[45] St. 2018, c. 99, § 25.

[46] The Affordable Homes Act, § 106.

[47] The Affordable Homes Act, §§ 20, 25, 140.