Post-Katrina Tax Shelter Expiring When It Is Most Needed
Marco Island, FL - May 22, 2008 - In many ways, the credit crisis has been harder on those who need low income housing than Hurricane Katrina. Unfortunately, elements of the GO Zone tax shelter legislation, passed to stimulate the creation of badly needed housing for many storm victims, are expiring just as they are needed most.
The sub-prime mortgage crisis, according to an important new study, has pushed more than a million more families, disproportionately low-income, into an inadequate rental market. This serious lack of rental housing is why the Center for Economic and Policy Research (CEPR) and the National Low Income Housing Coalition (NLIHC) are urging the Bush administration to shift emphasis to providing affordable rental properties.*
This lack or rental properties impacts low-income renters most. The CEPR/NLIHC study urges therefore the administration to "proactively facilitate the conversion to rental of vacant, foreclosed and delinquent units."
The expiration of the GO Zone tax credit is a blow to already insufficient low-income housing availability. The GO Zone legislation works by making half of all acquisition costs immediately available as depreciation write-offs to investors who bring housing to the market. Normally, federal tax code mandates that these paper write-offs accrue over 27.5 years.
For most people, the GO Zone depreciation allowance translates into an immediate reduction in income taxes. For individuals with incomes less than $100,000 a year, a maximum $25,000 reduction in taxable income is typically provided by a single investment property. For higher income earners, the immediate benefit is less; but upon sale or transfer of a property, these instantly accrued paper losses can be used to reduce taxes from all sources. They even allow the refund of taxes paid up to five years in the past. This is, some economists say, the most significant tax shelter available to average investors today.
Developers are using the tax shelter to help bring investors into programs that benefit low-income renters. Primarily, they operate in areas where rental incomes surpass the cost of home acquisition and ownership. The CEPR/NLIHC study, in a comparison of 100 housing markets, identifies several of those regions. Jackson Miss., for example, is listed as an area that enables the creation of over $75,000 in equity by 2012 (in only four years) per home.
One developer operating in Jackson, EquityBuild Inc., creates portfolios of new rental units for investors who want to take advantage of the GO Zone tax shelter. "We consider this a true socially responsible investment instrument," says EquityBuild CEO J.H. "Jerry" Cohen. "We buy distressed houses in good neighborhoods and bring them up to par so that investors can finance 100 percent of their purchase cost without using any of their own capital. We rent only to prequalified recipients of the federal government's Section 8 rental subsidy voucher program and manage the properties for a standard fee."
Cohen says that the GO Zone depreciation allowance has been a powerful inventive for his investors. "In Jackson," he says, "the numbers make sense even without the special tax advantages. We can bring new rental properties into the system because rents more than cover the cost of ownership. With these fundamentals, we have no trouble arranging financing for our investors. In other communities, however, the loss of this tax benefit will mean that many foreclosed and abandoned properties will not be turned into viable rental properties without direct government intervention. This will cost taxpayers money."
For more information, contact EquityBuild at 800.261.0648, by email at Recoachjerry1@att.blackberry.net or visit the Website at http://www.equitybuild.com.
*"Ownership, Rental Costs and the Prospects of Building Home Equity" can be accessed at http://www.cepr.net/index.php/publications.
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The sub-prime mortgage crisis, according to an important new study, has pushed more than a million more families, disproportionately low-income, into an inadequate rental market. This serious lack of rental housing is why the Center for Economic and Policy Research (CEPR) and the National Low Income Housing Coalition (NLIHC) are urging the Bush administration to shift emphasis to providing affordable rental properties.*
This lack or rental properties impacts low-income renters most. The CEPR/NLIHC study urges therefore the administration to "proactively facilitate the conversion to rental of vacant, foreclosed and delinquent units."
The expiration of the GO Zone tax credit is a blow to already insufficient low-income housing availability. The GO Zone legislation works by making half of all acquisition costs immediately available as depreciation write-offs to investors who bring housing to the market. Normally, federal tax code mandates that these paper write-offs accrue over 27.5 years.
For most people, the GO Zone depreciation allowance translates into an immediate reduction in income taxes. For individuals with incomes less than $100,000 a year, a maximum $25,000 reduction in taxable income is typically provided by a single investment property. For higher income earners, the immediate benefit is less; but upon sale or transfer of a property, these instantly accrued paper losses can be used to reduce taxes from all sources. They even allow the refund of taxes paid up to five years in the past. This is, some economists say, the most significant tax shelter available to average investors today.
Developers are using the tax shelter to help bring investors into programs that benefit low-income renters. Primarily, they operate in areas where rental incomes surpass the cost of home acquisition and ownership. The CEPR/NLIHC study, in a comparison of 100 housing markets, identifies several of those regions. Jackson Miss., for example, is listed as an area that enables the creation of over $75,000 in equity by 2012 (in only four years) per home.
One developer operating in Jackson, EquityBuild Inc., creates portfolios of new rental units for investors who want to take advantage of the GO Zone tax shelter. "We consider this a true socially responsible investment instrument," says EquityBuild CEO J.H. "Jerry" Cohen. "We buy distressed houses in good neighborhoods and bring them up to par so that investors can finance 100 percent of their purchase cost without using any of their own capital. We rent only to prequalified recipients of the federal government's Section 8 rental subsidy voucher program and manage the properties for a standard fee."
Cohen says that the GO Zone depreciation allowance has been a powerful inventive for his investors. "In Jackson," he says, "the numbers make sense even without the special tax advantages. We can bring new rental properties into the system because rents more than cover the cost of ownership. With these fundamentals, we have no trouble arranging financing for our investors. In other communities, however, the loss of this tax benefit will mean that many foreclosed and abandoned properties will not be turned into viable rental properties without direct government intervention. This will cost taxpayers money."
For more information, contact EquityBuild at 800.261.0648, by email at Recoachjerry1@att.blackberry.net or visit the Website at http://www.equitybuild.com.
*"Ownership, Rental Costs and the Prospects of Building Home Equity" can be accessed at http://www.cepr.net/index.php/publications.
Full HTML version of this release, Images, Video, PDF and MSWord:
http://www.rapidpressrelease.com/press%2Drelease/Investing/005535.asp
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