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SERVICE ANNOUNCES 'AVERAGE AREA PURCHASE PRICE' SAFE HARBOR LIMITATIONS APPLIED TO USE OF QUALIFIED MORTGAGE BONDS.

SEP. 26, 1988

Rev. Proc. 88-48; 1988-2 C.B. 635

DATED SEP. 26, 1988
DOCUMENT ATTRIBUTES
Citations: Rev. Proc. 88-48; 1988-2 C.B. 635

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).

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