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One Month to Go...Important LIHTC Deadline is Looming!

covid-19 lihtc May 31, 2023

Background | Generally, a project in LIHTC lease-up must fill all intended LIHTC units by the end of the first year that credits are claimed. Once credits are claimed, any future units that are added are only good for "2/3rds credits" and these must be claimed over the years that remain in the 15-year compliance period. This has a significant impact on the value of the credits when units that were planned to support full credits are reduced to the 2/3rd level.

Exception | There is a COVID-era relief that still applies that allows an owner to claim 2022 credits, and then add units in the first 6 months of 2023. These units cannot increase the 2022 credits, but they will qualify for full credits in 2023 and the rest of the credit period.

Recommendation |

Lease-ups where owners claimed credits for 2022 but did not fill all intended units should prioritize finishing the lease-up by June 30, 2023.
Partnerships that have not completed 2022 tax returns for first-year credits usually consider deferral of the first-year credits if lease-up was not complete in 2022. Now they may assess if claiming credits for 2022 on the partial lease-up and including the finished lease-up units in 2023 while avoiding 2/3rds credits would result in favorable credit delivery.

Example

An owner intended to rent all 100 units in an LIHTC project and start claiming credits in 2022.
Only 75 units were occupied by eligible residents by the end of 2022.
Knowing the COVID-era allowance, the owner elects to claim credits in 2022 based on the 75 units and not defer all credits.
The 25 remaining units are leased to LIHTC-qualified residents by June 10, 2023.

Outcome: Full credits based on all 100 units are claimed in 2023 and will be claimed for the remainder of the 10-year credit period. The 25 added units will NOT be subject to the "2/3rd credit" penalty.

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