Live Local Florida’s Proposed Impact, One Year Later
Passed in March 2023, Florida CS/SB 102 (“Live Local Florida”) provides funding and incentives for real estate developers and homebuyers – such as tax benefits and the ability to bypass traditional zoning procedures – when activities relate to increasing the availability of affordable housing.
Changes to local government zoning approvals under Live Local Florida
With Live Local Florida, new affordable housing developments in Florida may be able to bypass traditional local zoning requirements if certain conditions are met. These conditions include (i) at least 10% of the units included in the project are used for “affordable” housing, defined statutorily as less than 120% of the locality’s median income; and (ii) the developer did not apply for or receive State Apartment Incentive Loan funding.
More importantly, under the new regulations, (regardless of prior zoning) a local government must allow Live Local Florida projects if at least 40% of the development’s residential units are “affordable” and if the development is a mixed-use project at least 65% of the total square footage of the parcel is used for residential purposes. Therefore, it is anticipated that the aggregate effect of this program could supersede land development rules in localities and affect public hearings on land development.
Moreover, Live Local Florida provides that if an affordable housing project meets the proper requirements, certain features of the development (e.g., density or building height) cannot be restricted by the local government. However, certain other county land development regulations (e.g., setback and parking) remain intact, although the Florida Legislature is currently considering the breadth of these restrictions.
An additional change for local governments under Live Local Florida relates to land use reporting. Historically, state law demanded that counties keep an inventory of county-owned real property suitable for affordable housing (referred to as “surplus lands”). New regulations make the inventory of surplus lands more accessible and publicly available. This enhanced disclosure requirement is intended to spur new development by allowing investors to peruse any county’s inventory more easily and enter deals for purposes of developing affordable housing.
Ad Valorem Tax Incentives under Live Local Florida
Live Local Florida creates real property tax (ad valorem) reductions to qualified projects. Tax breaks are given for the relative value of the affordable housing units within a development project through its Middle Market Certification program. These incentives reduce the project’s tax assessed value, which in turn reduces the property’s respective tax bill. An important planning note here: to qualify for either incentive, every unit in the development is not required to be affordable within its statutory meaning; rather, the threshold for new construction is more than 70 affordable units, with construction completed within five years of the filing or certification request, and a three-year commitment from the project owner to provide affordable units.
A Multifamily Middle Market Certification is administered through Florida Housing and Finance Corporation (“FHFC”). Through this program, the FHFC certifies that the project owner has submitted the required documentation for review and the project owner must in turn use the certification to apply for the assessed value reduction directly at the local level, via the local property appraiser’s office. This certification – providing a reduction in appraised property value for ad valorem tax purposes – can be renewed every year with the state of Florida and the local property appraiser. However, the certification does not guarantee a developer will be entitled to a reduction in ad valorem tax.
To this end, Live Local Florida provides that the amount of the exemption received is determined on a per unit basis, based on the income of each unit’s tenant relative to the median income in the area where the project is located. Live Local Florida calls for a 100% exemption for the value of a unit if the tenant’s income is 80% or less of median income, and a 75% exemption of the value of the unit if the tenant’s income is between 80% and 120% of the area’s median income. Additionally maximum rents allowable under this program are 90% of fair market value (as determined by a local rental market study) or the Department of Housing (HUD) Tax Subsidy Projects Income Limits.
The first round of certifications applications closed in December 2023 and will apply to 2024 property taxes. The current regulation is set to expire at the end of 2059.
Income Tax Credit Incentives under Live Local Florida
The Corporate Donation Program
After October 1, 2023, taxpayers can make a monetary contribution to FHFC in exchange for tax credits against corporate income or insurance premium tax liabilities. Contributions are accepted online through the Florida Housing contribution page with certain restrictions.
Taxpayers who wish to participate must complete the Florida Department of Revenue Form DR446000 Application for Tax Credit Allocation for Contributions to the Florida Housing Finance Corporation. A taxpayer should only contribute to the FHFC after obtaining an approval notice from the Department. The FHFC will supply the Certificate of Contribution within 10 days from the contribution submission. The cap for the program allocation is $100 million in credit allocation annually.
Community Contribution Tax Credit Increases
The Community Contribution Tax Credit Program is an existing program that encourages private sector investment in community revitalization and housing projects. This program offered tax credits to businesses or persons (“donors”) who make eligible contributions to projects undertaken by approved sponsors. The donor may use the credit against corporate income tax, insurance premium tax, or as a refund against sales tax, subject to (1) the eligibility requirements of sponsors and (2) an eligible donation from the donor. There are currently 122 approved sponsors in Florida, comprised of community agencies, housing organizations, or state/local government units, amongst other organizational types. Donations must be in the form of cash, real property, goods or inventory.
Live Local Florida notably increased the available credits from $14.5 million to $25 million annually. The credit is calculated as 50 percent of the donor’s annual contribution, up to $200,000 in credits per year, with sales and use tax credits granted as a refund against remitted taxes reported in the 12 months preceding the date of tax credit application. Unused credits against corporate income taxes and insurance premium taxes may be carried forward for 5 years, whereas unused credits against sales taxes may be carried forward for 3 years.
On a practical tax planning note, both the Corporate Donation Program and the Community Contribution Credits are of particular interest for an entity taxed as C-Corp looking for diverse alternatives to offset Florida corporate income tax liabilities, or a captive insurer looking to offset insurance premium taxes.
Sales Tax Refunds for Affordable Housing Construction Materials
Finally, Live Local Florida codified sales tax relief for building materials used in new construction for certain affordable housing developments, which can be applied to materials purchased after July 1, 2023. This incentive functions as a refund on sales tax paid rather than an exemption at the time of purchase. A refund may not be granted unless the amount to be refunded exceeds $500 but cannot exceed the lesser of $5,000 or 97.5 percent of the Florida sales or use tax paid on the cost of building materials. Only one refund of previously paid taxes may be claimed for any eligible residential unit.
The Florida Department of Revenue stated that it issues a refund within 30 days after formally approving a refund application. Refund applications must be submitted within six months after an eligible unit is deemed substantially completed by the local government inspector, or by the November 1st after an improved property is first subject to assessment.
Conclusion
Live Local Florida is a large, complex, and actively moving bill with several revisions currently being discussed within the Florida Legislature. Regardless of how this all shakes out, the current iteration of the bill has energized real estate developers to pivot to more affordable housing projects in order to capture these new incentives.
Thanks to Robert Clark and Brian Zingaretti for writing this blog post!
Sources: Florida Senate Bill 102, Florida Department of Revenue
Courtney is a Tax Principal in CLA's Real Estate industry group and has more than 17 years of experience providing accounting, tax and consulting services to real estate owners, operators and developers. She also consults with high net-worth individuals and owners of closely-held businesses on all aspects of tax planning.
Comments are closed.