Article | What the IRS Says About LIHTC Allocation Fees in Eligible Basis
Jan 08, 2025
Question Posed...
On applying to the housing credit agency for an allocation of §42 credits for a new building, the housing credit agency required that the applicant pay a nonrefundable application fee. If the applicant is successful, an allocation fee is also payable to the housing credit agency. The owner asked if the application and allocation fees are includable in the eligible basis of the low-income housing building.
...and the IRS Says...
No. The application fee and allocation fee are not includable in the
eligible basis of the applicant's low-income housing building because the fees are not capitalizable into the adjusted basis of the building. [See §263 and §263A]
Additional note | Depending on the facts and circumstances, the IRS points out that all or a portion of these fees may be required to be capitalized as amounts paid to create an intangible asset. [See § 1.263(a)-4] Any portion of these fees not required to be capitalized under §1.263(a)-4 may be deductible as an ordinary and necessary expense under §162 or §212, provided the taxpayer satisfies the requirements of those sections.
Up next: Do tenants have to live in a unit a month to claim credits on the unit?
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