SERVICE ANNOUNCES 'AVERAGE AREA PURCHASE PRICE' SAFE HARBOR LIMITATIONS APPLIED TO USE OF QUALIFIED MORTGAGE BONDS.
Rev. Proc. 88-48; 1988-2 C.B. 635
- Institutional AuthorsInternal Revenue Service
- Code Sections
- Subject Areas/Tax Topics
- Index Termsmortgage revenue bondsaverage area purchase price
- Jurisdictions
- LanguageEnglish
- Tax Analysts Electronic Citation88 TNT 196-7
Obsoleted by Rev. Proc. 90-51 Obsoleted in part by Rev. Proc. 89-59 Supplemented by Rev. Proc. 89-27
Rev. Proc. 88-48
SECTION 1. PURPOSE
This revenue procedure provides issuers of qualified mortgage bonds, as defined in section 143(a) of the Internal Revenue Code, and issuers of mortgage credit certificates, as defined in section 25(c), with a list of the "average area purchase price" safe harbor limitations.
SEC. 2. BACKGROUND
01 Section 103(a) of the Code provides that, except as provided in section 103(b), gross income does not include interest on any state or local bond. Section 103(b)(1) provides that section 103(a) shall not apply to any private activity bond that is not a "qualified bond" within the meaning of section 141. Section 141(e)(1)(B) provides that the term "qualified bond" includes any private activity bond if such bond is a qualified mortgage bond.
02 Section 143(a)(1)(A) of the Code provides that the term "qualified mortgage bond" means a bond that is issued as part of a qualified mortgage issue. Section 143(a)(2)(A) provides that the term "qualified mortgage issue" means an issue by a state or political subdivision thereof of one or more bonds, but only if (i) all proceeds of such issue (exclusive of issuance costs and a reasonably required reserve) are to be used to finance owner-occupied residences; (ii) such issue meets the requirements of subsections (c), (d), (e), (f), (g), (h), and (i); and (iii) such issue does not meet the private business tests of paragraphs (1) and (2) of section 141(b).
03 An issue of bonds meets the requirements of subsection (e) of section 143 of the Code if the acquisition cost of each residence financed by the issue does not exceed 90 percent of the average area purchase price applicable to such residence. In the case of a targeted area residence, the acquisition cost must not exceed 110 percent of the average area purchase price. The term "average area purchase price" means, with respect to any residence, the average purchase price of single-family residences (in the statistical area in which the residence is located) that were purchased during the most recent 12-month period for which sufficient statistical information is available. Separate determinations are made for new and existing residences, and for two-, three-, and four-family residences.
04 Section 143(e)(2) of the Code provides that the determination of whether the acquisition cost of each residence does not exceed 90 or 110 percent of the average area purchase price for that statistical area shall be made as of the date on which the commitment to provide the financing is made or, if earlier, the date of the purchase of the residence.
05 Section 6a.103A-2(f)(5)(i) of the Temporary Income Tax Regulations (issued under former section 103A(f), the predecessor of section 143(e)) provides that an issuer may rely upon the average area purchase price safe harbor limitations published by the Department of the Treasury for the statistical area in which a residence is located. An issuer may use a limitation different from the published safe harbor limitation if the issuer has more accurate and comprehensive data. However, when computing the average area purchase price for a statistical area that is a county, the issuer ordinarily must make the computation on an individual county basis and may not combine two or more counties.
06 Section 143(k)(2)(A) of the Code provides that the term "statistical area" means (i) a metropolitan statistical area (MSA), and (ii) any county (or the portion thereof) that is not within an MSA. An MSA is an area that contains a city of at least 50,000 population, or an urbanized area of at least 50,000 with a total metropolitan population of at least 100,000. If an area has more than one million population and meets certain other specified requirements, it is termed a "consolidated metropolitan statistical area" (CMSA), consisting of major components recognized as "primary metropolitan statistical areas" (PMSA).
07 A state or local government may elect to exchange all or part of its qualified mortgage bond authority for authority to issue mortgage credit certificates. In general, the recipient of a mortgage credit certificate may claim a federal income tax credit equal to the product of the certificate credit rate and the interest paid or accrued on the remaining principal of the certified indebtedness amount. Section 25(c)(2)(A)(iii)(III) of the Code provides that the indebtedness certified by mortgage credit certificates must meet the purchase price requirements under section 143(e). Thus, the purchase price of the residence financed may not exceed 90 percent of the average area purchase price (110 percent in a targeted area).
08 The average area purchase price safe harbor limitations for the period beginning May 11, 1987, were published in Rev. Proc. 87- 20, 1987-1 C.B. 713. Section 3.01 of Rev. Proc. 87-20 provides that issuers may rely on such average area purchase price safe harbor limitations until new safe harbor limitations are published. Rev. Proc. 88-30, 1988-24 I.R.B. 30, modified the average area purchase price safe harbor limitations for new and existing single-family residences for the State of Iowa as published in Rev. Proc. 87-20.
SEC. 3. APPLICATION
01 Issuers of qualified mortgage bonds and mortgage credit certificates may rely on the average area purchase price safe harbor limitations contained in this revenue procedure for the period beginning September 26, 1988, the date of publication of this revenue procedure in the Internal Revenue Bulletin, and ending on the date that new safe harbor limitations are published. The safe harbor limitations are estimates of the average area purchase price on which issuers may rely to satisfy the requirements of section 143(e) of the Code. The estimates are based on information from the Federal Home Loan Bank Board's monthly "Mortgage Interest Rate Survey" (MIRS), Part A. The survey contains sales price estimates for both new and existing one-family nonfarm residences. The safe harbor limtiations are generally based on the sales price estimates for the 12 months ending December 31, 1987. However, if insufficient sales data were available for MSAs and PMSAs for the 12 months ending December 31, 1987, consideration was given to earlier 12-month periods to the extent that sufficient data were available for such periods. No sales data before January 1, 1986, were considered. The safe harbor limitations for new residences and the safe harbor limitations for existing residences are based on sales data from different 12-month periods if there were insufficient sales data for both new and existing residences in a single 12-month period. The sales price data are adjusted for nonconventional (Federal Housing Administration (FHA) insured and Veterans Administration guaranteed) home sales. The data are presented for each MSA or PMSA for which a sufficient data sample is available. Data for the remaining areas in each state are combined to produce an estimate for "all other areas" in the state. If the data for a state or for "all other areas" in a state are too small, a regional estimate of average purchase price is used. Safe harbor limitations for two-to-four-family residences are equal to the appropriate average area purchase price for single-family residences multiplied by the following adjustment factor: 1.126 for two-family residences, 1.363 for three-family residences, and 1.585 for four- family residences. These adjustment factors are similar to those used for the FHA mortgage limitations.
02 Issuers of qualified mortgage bonds may continue to rely on the average area purchase price safe harbor limitations contained in Rev. Proc. 87-20 for mortgages financed with proceeds of bonds sold before October 26, 1988, 30 days after publication of this revenue procedure in the Internal Revenue Bulletin, if the commitments to provide financing for the mortgages are made before December 25, 1988, 90 days after publication of this revenue procedure in the Internal Revenue Bulletin. Issuers of mortgage credit certificates may continue to rely on the average area purchase price safe harbor limitations contained in Rev. Proc. 87-20 for certificates issued with respect to bond authority exchanged before the earlier of (1) October 26, 1988, 30 days after publication of this revenue procedure in the Internal Revenue Bulletin, or (2) the date following the termination date set forth in section 25(h), and if the commitments to issue the certificates are made before December 25, 1988, 90 days after publication of this revenue procedure in the Internal Revenue Bulletin. Issuers may continue to rely on the average area purchase price safe harbor limitations for Guam, Commonwealth of the Northern Mariana Islands, and Puerto Rico, as added to Rev. Proc. 85-42, 1985- 2 C.B. 496, by Rev. Proc. 87-19, 1987-1 C.B. 712, until new safe harbor limitations are published for those jurisdictions.
03 Issuers of qualified mortgage bonds and mortgage credit certificates who receive rulings on or after September 26, 1988, the date of publication of this revenue procedure in the Internal Revenue Bulletin, permitting them to rely on an average area purchase price limitation that is higher than the safe harbor limitation in this revenue procedure, may rely on such limitation for not more than 30 months following the termination date of the 12-month period used by the issuer to compute the average area purchase price limitation. However, in the case of issuers who have received letter rulings prior to September 26, 1988, the issuer may rely on such limitation for a period equal to the greater of (1) the 30-month period set forth in the prior sentence or (2) 1 year from the date of issuance of the ruling.
04 If an MSAS or PMSA is contained in two or more states, the acquisition cost of a residence within that MSA or PMSA shall not exceed the safe harbor limitation provided for the MSA or PMSA, not the limitation provided for all other areas in the state.
05 The average area purchase price safe harbor limitations, which are set forth below, have not been adjusted to reflect either the 90 percent of the average area purchase price described in section 143(e)(1) of the Code of the 110 percent of the average area purchase price described in section 143(e)(5).
Average Area Purchase Price Safe
Harbor Limitations for Single-
Family Residences
________________________________
State and Area Designation New Existing
__________________________ ___ ________
Alabama
Birmingham MSA $118,300 $ 95,900
Huntsville MSA 113,400 95,500
All Other Areas 96,600 83,700
Alaska
All Areas 120,200 96,500
Arizona
Phoenix MSA 125,000 120,300
Tucson MSA 128,100 113,200
All Other Areas 102,500 76,700
Arkansas
All Areas 97,400 77,100
California
Anaheim-Santa Ana PMSA 154,800 165,300
Chico MSA 96,300 84,400
Fresno MSA 115,400 89,200
Los Angeles-Long Beach PMSA 154,300 155,700
Modesto MSA 117,200 93,900
Oakland PMSA 169,000 154,300
Oxnard-Ventura PMSA 179,400 155,100
Riverside-San Bernardino PMSA 129,800 114,200
Sacramento MSA 126,700 111,800
Salinas-Seaside-Monterey MSA 164,600 149,300
San Diego MSA 157,400 137,300
San Francisco PMSA 203,900 195,500
San Jose PMSA 180,000 178,400
Santa Barbara-Santa Maria-Lompoc
MSA 161,200 182,200
Santa Cruz PMSA 159,000 156,300
Santa Rosa-Petaluma PMSA 130,100 128,200
Stockton MSA 117,300 93,000
Vallejo-Fairfield-Napa PMSA 132,300 125,100
All Other Areas 126,100 94,300
Colorado
Denver PMSA 124,900 126,700
All Other Areas 116,600 100,100
Connecticut
Bridgeport-Milford MSA 155,300 149,000
Hartford PMSA 176,800 136,300
New Haven-Meriden MSA 186,200 162,200
Waterbury MSA 166,900 130,600
All Other Areas 195,500 175,900
Delaware
All Areas 107,200 106,300
District of Columbia
Washington (DC-VA-MD) MSA 166,100 138,500
Florida
Daytona Beach MSA 87,800 70,000
Ft. Lauderdale-Hollywood-
Pompono Beach PMSA 111,900 91,000
Ft. Myers-Cape Coral MSA 98,900 98,400
Ft. Pierce MSA 85,000 71,700
Jacksonville MSA 100,700 90,300
Lakeland-Winter Haven MSA 73,900 69,500
Melbourne, Titusville-Palm Bay MSA 82,600 85,600
Miami-Hialeah PMSA 96,900 94,300
Orlando MSA 117,500 91,900
Sarasota MSA 115,300 88,800
Tampa-St. Petersburg-Clearwater 115,000 85,300
West Palm Beach-Boca Raton-
Delray Beach MSA 113,800 96,900
All Other Areas 87,800 82,900
Georgia
Atlanta MSA 142,600 109,400
All Other Areas 97,700 64,500
Hawaii
All Areas 156,200 152,500
Idaho
All Areas 120,800 95,300
Illlinois
Chicago PMSA 133,800 103,300
Joliet PMSA 118,800 77,000
Lake County PMSA 198,700 135,100
All Other Areas 71,200 54,400
Indiana
Fort Wayne MSA 86,700 55,600
Gary-Hammond PMSA 93,400 71,500
Indianapolis MSA 115,500 83,500
All Other Areas 73,300 55,200
Iowa
All Areas 66,600 62,500
Kansas
Topeka MSA 99,700 69,000
Wichita MSA 116,900 77,400
All Other Areas 77,400 57,900
Kentucky
Louisville (KY-IN) MSA 99,500 73,700
All Other Areas 73,200 53,200
Louisiana
All Areas 103,600 85,200
Maine
All Areas 140,300 95,300
Maryland
Baltimore MSA 137,900 107,400
All Other Areas 98,000 67,700
Massachusetts
Boston PMSA 195,900 159,800
Lawrence-Haverhill (MA-NH) PMSA 183,600 167,500
Springfield MSA 109,900 108,300
All Other Areas 168,800 136,900
Michigan
Ann Arbor PMSA 147,000 90,900
Detroit PMSA 109,100 79,800
Grand Rapids MSA 92,400 78,100
All Other Areas 77,000 57,800
Minnesota
Minneapolis-St. Paul (MN-WI) MSA 150,600 122,700
All Other Areas 75,300 55,200
Mississippi
All Areas 98,400 77,300
Missouri
Kansas City Missouri-Kansas
(MO-KS) MSA 110,400 78,500
St. Louis (MO-IL) MSA 103,800 81,700
All Other Areas 85,700 49,700
Montana
All Areas 119,400 100,200
Nebraska
All Areas 94,500 66,000
Nevada
All Areas 137,300 122,400
New Hampshire
All Areas 152,400 120,800
New Jersey
Atlantic City MSA 110,600 101,500
Bergen-Passaic PMSA 218,600 191,300
Middlesex-Somerset-Hunterdon PMSA 164,600 146,500
Monmough-Ocean PMSA 147,200 131,700
Newark PMSA 207,700 173,900
Trenton PMSA 145,800 111,600
All Other Areas 105,000 77,500
New Mexico
All Areas 104,200 79,100
New York
Nassau-Suffolk PMSA 180,100 162,900
New York City PMSA 199,900 172,800
Rochester MSA 108,100 69,700
Syracuse MSA 96,200 76,100
All Other Areas 96,600 74,500
North Carolina
Charlotte-Gastonia-Rock Hill
(NC-SC) MSA 112,100 87,900
Greensboro-Winston-Salem-High
Point MSA 119,200 93,900
Raleigh-Durham MSA 135,700 108,400
All Other Areas 90,700 69,600
North Dakota
All Areas 119,400 100,200
Ohio
Akron PMSA 107,100 64,400
Canton MSA 86,800 54,000
Cincinnati (OH-KY-IN) PMSA 132,100 83,900
Cleveland PMSA 113,200 72,900
Columbus MSA 89,800 82,200
Dayton-Springfield MSA 110,200 65,100
Hamilton-Middletown PMSA 121,800 69,400
Lorain-Elyria PMSA 110,900 62,200
All Other Areas 85,500 56,700
Oklahoma
All Areas 109,200 82,400
Oregon
Portland PMSA 123,800 93,000
All Other Areas 106,900 68,500
Pennsylvania
Allentown-Bethlehem (PA-NJ)
MSA 121,600 87,900
Harrisburg-Lebanon-Carlisle
MSA 100,000 65,400
Lancaster MSA 94,300 78,900
Philadelphia (PA-NJ) PMSA 121,400 97,100
Pittsburgh PMSA 111,400 64,900
Scranton-Wilkes-Barre MSA 102,700 71,200
All Other Areas 94,700 50,000
Rhode Island
Pawtucket-Woonsocket-Attleboro
(RI-MA) PMSA 135,200 133,900
All Other Areas 164,200 133,500
South Carolina
Columbia MSA 108,600 91,500
Greenville-Spartanburg MSA 95,900 81,700
All Other Areas 88,900 87,200
South Dakota
All Areas 119,400 100,200
Tennessee
Chattanooga (TN-GA) MSA 95,200 75,100
Knoxville MSA 92,400 89,300
Memphis (TN-AR-MS) MSA 127,500 106,400
Nashville MSA 142,300 97,100
All Other Areas 65,200 52,800
Texas
Dallas PMSA 120,700 117,600
Houston PMSA 149,500 87,000
All Other Areas 124,500 82,900
Utah
All Areas 118,500 90,300
Vermont
All Areas 140,300 95,300
Virginia
Norfolk-Virginia Beach-Newport
News MSA 133,600 112,600
Richmond-Petersburg MSA 115,400 90,500
All Other Areas 91,200 85,800
Washington
Seattle PMSA 137,700 115,700
All Other Areas 103,600 85,900
West Virginia
All Areas 125,600 93,200
Wisconsin
Madison MSA 102,500 87,400
Milwaukee PMSA 118,200 81,800
All Other Areas 89,600 60,100
Wyoming
All Areas 119,400 100,200
SEC. 4. EFFECT ON OTHER REVENUE PROCEDURES
Rev. Proc. 87-20 is obsolete except as provided in section 3.02 of this revenue procedure.
DRAFTING INFORMATION
The principal author of this revenue procedure is Gene Overton of the Individual Tax Division. For further information regarding this revenue procedure contact Mr. Overton on (202) 566-4310 (not a toll-free call).
- Institutional AuthorsInternal Revenue Service
- Code Sections
- Subject Areas/Tax Topics
- Index Termsmortgage revenue bondsaverage area purchase price
- Jurisdictions
- LanguageEnglish
- Tax Analysts Electronic Citation88 TNT 196-7