Professional Tax Credit Planning and Compliance
Make Affordable Housing a Reality
Tax credits reduce taxes for individuals and businesses, and they’re meant to be an incentive for a business to do something. In this case, the Low Income Housing Tax Credit (LIHTC) is meant to help real estate developers and investors make their properties available as affordable housing for low-income families. The program started in 1986 and is administered by the IRS.
The LIHTC addresses a weakness of the housing market: the lack of quality housing for low-income households. The federal government issues tax credits to states and territories, which then award the credits to private developers who sell the credits to investors. Once a housing project is in place, the investors in the project can claim the credit over a 10-year period.
Rubino helps developers and investors navigate the LIHTC application process, determine if their property and project is eligible, and help them maintain compliance throughout the credit period.
To receive low-income housing tax credits, properties must meet certain qualifications. Many types of rental properties are LIHTC eligible, including apartment buildings, single-family dwellings, townhouses, and duplexes.
Low-income housing eligibility is based on the incomes of the residents in a building. Building owners or property developers that want to receive the LIHTC must agree to meet this income test for tenants as well as a gross rent test. There are three ways to meet the income test:
- At least 20% of the project’s units are occupied by tenants with an income of 50% or less of area median income (AMI) adjusted for family size
- At least 40% of the units are occupied by tenants with an income of 60% or less of AMI
- At least 40% of the units are occupied by tenants with income averaging no more than 60% of AMI, and no units are occupied by tenants with income greater than 80% of AMI
The gross rent test requires that average tenant rents do not exceed 30% of either 50 or 60% of AMI, depending upon the share of tax credit rental units in the project. All LIHTC projects must comply with the income and rent tests for 15 years, or credits are recaptured. In addition, an extended compliance period (30 years in total) is generally imposed.
Rubino works closely with building owners, management agents, and onsite personnel to assist them in meeting their LIHTC compliance responsibilities. Because of the complexity of LIHTC requirements and regulations, we are an essential resource for development companies and building owners that want to take full advantage of the LIHTC.
We assist our clients with computing the credit, allocating the credit, and calculating costs and benefits.
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For more than 40 years, Rubino has provided highly specialized public accounting, tax and financial planning, regulatory consulting, and related financial services.
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