Much-anticipated accounting changes for low-income housing tax credit (LIHTC) investments have been approved by the Financial Accounting Standards Board’s Emerging Issues Task Force (EITF).
The EITF supported allowing qualifying LIHTC investments to use the proportional amortization method, where the costs as well as the tax credits and other tax benefits of the investment are reported in the income statement on a net basis as a component of income taxes. The EITF recommendations allow the primary source of economic benefit to be used to determine the pattern of amortization.
Many in the affordable housing industry are behind the change because it makes the accounting of LIHTC investments clearer.
“It potentially gives us the opportunity to make these investments attractive to a larger pool of investors,” says Beth Mullen, national director of the affordable housing industry practice at CohnReznick.
The accounting changes more accurately reflect what is happening with a LIHTC investment, according to Mullen.
The EITF took the step of approving the changes for the housing credit rather than delaying it while it still weighs accounting changes for New Markets and other tax credits, says Mullen.
It is anticipated that the full Financial Accounting Standards Board will accept the EITF recommendations.
While it is too early to tell how significant the change may be in attracting new investors, there’s strong agreement that it can only help and is positive for the industry, says Bryan Keller, partner-in-charge of the Real Estate Services Group at RubinBrown.
Keller wrote about the EITF and the proposed changes it was looking at earlier this year in AHF.