We are a developer of affordable housing and are considering an investment in an Opportunity Zone. We have used low-income housing tax credits in the past but never included both tax incentives in the financing of one project. What are the potential risks?
Both incentive structures can be used together. Important to consider when developing multifamily is meeting the substantial improvement rule for OZ taxpayers - they must double their adjusted basis in the property (not including the basis of land) after purchase and during any 30-month period that the OZ property is held. The basis additions need to exceed the property adjusted basis at the beginning of that 30-month period.
You have a double compliance obligation, so the main risk is that there are roughly twice as many compliance issues that can come up. You'll need advisors well-versed in both programs to bridge the gap.
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