Once the 15-year affordability period is over, LIHTC owners who seek and are granted regulatory relief from the program can convert their properties to market-rate units. Some states require longer affordability restrictions, and some LIHTC developments have local financing that comes with longer use restrictions.
What is the low-income housing tax credit (LIHTC)?
- The Low–Income Housing Tax Credit (LIHTC) program has been a significant source of new multifamily housing for a quarter century, producing more than 2 million units of affordable rental housing since 1987. In recent years, LIHTCs have provided funding for approximately one-third of all new multifamily housing units built in the United States.
How long do LIHTC credits last?
Although LIHTC properties must commit to at least 30 years of affordability, they are only subject to a 15-year “compliance period.” This is the period of time where the tax credits that have been given to developers can be taken away or “re-captured” if the property fails to comply with LIHTC regulations.
What causes LIHTC recapture?
In summary, the three triggers of recapture are disposition, noncompliance and casualty loss. Trigger: The sale of an LIHTC property to a new owner can trigger recapture of the credits previously claimed by the original owner.
How long are affordable units typically restricted to low income households?
Term of Affordability All Lower and Very Low Income rental density bonus units must remain affordable for 30 years (or longer, if required by the construction or mortgage financing assistance program, mortgage insurance program, or rental subsidy program.)
What is the extended use period?
Extended Use Period means the continuous period, a minimum of fifteen (15) years, following the close of the Compliance Period during which a Qualifying Building must satisfy all requirements of the Code and the Credit Program.
What happens when LIHTC expires?
The second 15 years are known as the extended use period, when owners can leave the LIHTC program through a relief process. Once the 15-year affordability period is over, LIHTC owners who seek and are granted regulatory relief from the program can convert their properties to market-rate units.
How are tax credits allocated?
The regulations state that if a partnership expenditure that gives rise to a tax credit also gives rise to valid allocations of loss or deduction, then the credit will allocated in the same manner as the loss or deduction which decreases the partners’ capital accounts.
What does refundable tax credit mean?
A refundable tax credit can be used to generate a federal tax refund larger than the amount of tax paid throughout the year. In other words, a refundable tax credit creates the possibility of a negative federal tax liability. An example of a refundable tax credit is the Earned Income Tax Credit.
Who can recapture tax credits?
If you’re in the situation where you have to file IRS Form 4255, you might have to pay back a tax credit you’ve earned in prior years. This process, known as recapture, occurs if you claim a credit —in this case, a credit for a specific type of business investment—and then no longer qualify for that credit.
How is tax credit recapture calculated?
To calculated the recapture, determine the credit associated with the $250,000 basis reduction. $250,000 X. 0900 = $22,500. The recapture rate in year 13 is 3/15 or 0.200. This is reflected as follows:
- 1/15 or 0.067 for year 15.
- 2/15 or 0.133 for year 14; and.
- 3/15 or 0.200 for year 13;
- 4/15 or 0.267 for year 12;
How does low income apartments work?
Low-income housing provides housing opportunities for people who are unable to afford ever-rising rental rates. Public Housing: Housing units managed by the local housing authority that offers affordable rentals to low-income households. The units are priced based on a percentage of one’s income.
Can a low income person buy a house?
You can also buy a house using a government-backed mortgage, like FHA or USDA. With these programs, the government essentially insures the loan, so you can buy with a lower income, credit score, or down payment than you could otherwise.
What is the difference between a 4 and 9 tax credit deal?
The 4% tax credit (30% subsidy) is for the acquisition of existing buildings for rehabilitation and new construction financed by tax-exempt bonds. The 9% tax credit (70% subsidy) is usually for new construction and substantial rehabilitation without federal subsidies.
What is the LIHTC program?
Created by the Tax Reform Act of 1986, the LIHTC program gives State and local LIHTC-allocating agencies the equivalent of approximately $8 billion in annual budget authority to issue tax credits for the acquisition, rehabilitation, or new construction of rental housing targeted to lower-income households.
What is affordability period?
Minimum period of affordability in years For Rental housing, the basis of the affordability period is the amount of NSP funds used per unit. For homeownership using the Resale Approach, it is the total amount of NSP funds used in developing the project, even if the funds are returned through sale proceeds.