Tax Facts

7801 / What is the low-income housing tax credit?

The low-income housing tax credit is an income tax credit based on a percentage of the qualified basis of certain low-income housing placed in service after 1986. Generally, the credit is determined in the year in which the property is placed in service and may be taken annually for 10 years. Subject to certain limitations, the adjusted basis qualifying for the credit consists of expenditures for certain new housing or substantially rehabilitated housing.1

Taxpayers seeking the credit make application to the local housing agency in order to obtain a building identification number.2 All taxpayers, except those who finance the project through certain tax-exempt bonds described in IRC Section 42(h)(4), must receive an allocation of the credit for the building.3 All taxpayers, however, must comply with IRS certification requirements in order to obtain the credit.4 If, during the 15-year compliance period, there is a change in the portion of housing that is low-income housing or the property ceases to qualify as low-income housing, there is a recapture of all or part of the credit.5

1. IRC § 42.

2. Notice 88-91, 1988-2 CB 414.

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