Federal Tax

Rehabilitation Tax Credit and Low-Income Housing Tax Credit (Portfolio 584)

  • This Portfolio analyzes tax credits for both the rehabilitation of certified historic structures and the acquisition, construction, and rehabilitation of low-income housing.

Description

Tax Portfolio, Low-Income Housing Tax Credit, No. 584, provides an in-depth analysis of the tax credit for the acquisition, construction, and/or rehabilitation of low-income housing. The low-income housing tax credit is calculated as a percentage of the eligible costs of acquiring, constructing, and/or rehabilitating a building that will provide low-income housing (the “eligible basis”), adjusted for the portion of the building occupied by low-income households (the “qualified basis”). The credit is claimed annually for 10 years, provided that low-income use is maintained continuously throughout a 15-year “compliance period” and the taxpayer commits to maintaining the project as a low-income housing project for an “extended use” period of at least an additional 15 years after the end of the compliance period (i.e., a total of 30 years). To qualify for the low-income housing credit, the building must receive an allocation of credits from a designated state agency (or be financed with tax-exempt bonds that are subject to a state’s “volume cap”) and at least a specified percentage (which can vary) of the units in the project must be occupied by persons whose incomes are substantially below the local area median. In addition, rents paid by low-income tenants are restricted to 30% of the imputed income limitation for each unit, based on the number of bedrooms in each unit.

The many technical rules and compliance requirements that must be met in order to claim the low-income housing tax credit are analyzed in Sections II through XV of this Portfolio. Important ancillary considerations, including exit issues, partnership allocation issues, state low-income housing tax credits, and certain limitations on the use of low-income housing tax credits, including the at-risk and passive loss rules, are discussed in Sections XVI through XXV.

This Portfolio may be cited as Machen, McDermott, and Lavin, 584 T.M., Low-Income Housing Tax Credit.

Table of Contents

I. Background and Overview of the Housing Tax Credit
II. Calculation of Credit Percentage
III. Calculating Eligible Basis IV. Qualified Basis
V. Minimum Set-Aside and Rent Restriction Tests
VI. Housing Tax Credit Allocation Process
VII. Mixed Income Projects and the Available Unit and Vacant Unit Rules
VIII. Scattered Site Projects
IX. Placed in Service Rules and the Start of the Credit Period
X. State and Local Housing Credit Agencies
XI. Housing Tax Credit Allocations and Tax-Exempt Bond Financed Projects
XII. Depreciation and Tax-Exempt Use Property
XIII. Compliance Monitoring and Reporting Requirements
XIV. Recapture of Housing Tax Credits
XV. Correction of Administrative Errors
XVI. Exit Issues
XVII. How Housing Tax Credits Are Allocated by a Partnership
XVIII. State Tax Credits
XIX. Tax Ownership Issues
XX. True Debt Issues
XXI. Passive Activity and At-Risk Rules
XXII. Limitations on Interest Deductions Imposed by 2017 Tax Act
XXIII. Other Applicable Provisions of 2017 Tax Act
XXIV. Limitation Based on Amount of Tax
XXV. Other Statutory, Regulatory and Judicial Limitations

McDermott-James
James McDermott
Holland & Knight LLP
Machen_William
William Machen
Holland & Knight LLP
Lavin-Eric
Eric Lavin
Holland & Knight LLP
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