Tax News

CCH (cch.taxgroup.com) reports:

  Taxpayers may deduct the gain from the sale of residential rental units in Michigan to a qualified affordable housing project (project) from the tax base when calculating the Michigan business income tax. The project must enter an agreement to operate the residential rental units as rent restricted units for at least 15 years. The deduction is limited if the project agrees to operate only some of the units as rent restricted units. In that case, the deduction is limited to an amount equal to the gain from the sale multiplied by a fraction. The fraction's numerator is the number of units purchased and to be operated as rent restricted; the denominator is all the units purchased.

  A "project" is defined as a person that is organized, qualified, and operated as a limited dividend housing association that has limited the amount of dividends or other distributions that may be distributed to its owners and has received funding through certain sources.

  The Michigan Department of Treasury will record a lien against the property subject to the operation agreement for the total amount of the deduction. The project must pay the lien to the state if it does not qualify as a project and if it fails to operate all or some of the units as rent restricted within 15 years after the deduction is claimed. An amount is added back to the project's tax liability for the tax year that the project fails to comply. The amount is equal to 100% of the amount of the deduction multiplied by a fraction. The fraction's numerator is the difference between 15 and the number of years the project qualified and operated the rent restricted units; the denominator is 15.

  The project may deduct an amount equal to the product of taxable income attributable (or total gross receipts) to its Michigan residential rental units multiplied by a fraction. The fraction's numerator is the number of Michigan rent restricted units owned by the project; the denominator is the number of all Michigan residential rental units owned by the project. The deduction is reduced by the amount of limited dividends and other distributions made to the project's partners, members, or shareholders. Also, taxable income attributable to residential rental units does not include income received by a management, construction, or development company for completion and operation. This deduction is applicable to both the business income tax and the modified gross receipts tax portions of the Michigan business tax.

Act 168 (H.B. 5893), Laws 2008, effective April 30, 2008.