Section 2

Citation: Section 2
Parent Document: Commonwealth of Pennsylvania v. James T. Lynn, Secretary of Housing and Urban Development, 501 F.2d 848 (1974)
Jurisdiction: United States (federal)
Effective Date: 1974-09-25
Original Source: https://www.courtlistener.com/opinion/321083/commonwealth-of-pennsylvania-v-j... ↗

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. Section 236 housing may be built by profit, nonprofit, or cooperative enterprises. A profit-making enterprise is limited to a six per cent cash return on investment, but realizes substantial additional tax benefits during the development of the project. Certain construction period expenses ordinarily of a capital nature are immediately deductible. Accelerated depreciation of the project cost basis generates a tax loss that can shelter other income. This effect is magnified by the high loan-to-value ratio available, enabling a smaller than conventional equity investment to leverage a higher ratio of depreciable basis to equity. Furthermore, the forty year amortization period loads the early year payments with a greater component of deductible interest than obtains under conventional 20-25 year financing. 58

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