Question Posed...

On initial occupancy of a unit in the first year of a newly constructed building's credit period, an income-qualified tenant moved into the unit on the last day of a month. The unit was rent-restricted in accordance with §42. [(g)(2)] In determining the low-income housing credit for the building for the first year of the credit period, is the unit treated as a low-income unit for that month for purposes of the prorated first year applicable fraction? [§42(f)(2)(A)]

...and the IRS Says...

Yes. The unit is treated as a low-income unit eligible for inclusion in the numerator and denominator of the monthly prorated applicable fraction. [§42(f)(2)(A)(I)] This is true as long as the tenant, who meets the income limitation under §42 resides in the rent-restricted unit on the last day of the month. [§42(f)(2)(A)] However, the building must have been placed in service for a full month for the unit to be includable in the numerator and denominator of the monthly applicable fraction.

Note: it is the full-month provision that applies to the building that has confused some to mistakenly think that a tenant must occupy a unit for a full month. Interestingly, before Revenue Ruling 2004-82, the IRS answered this question incorrectly several timed in prior informal guidance. 

Up Next: Prohibited Actions Under LIHTC Leases - for 3 or 30+ years?

Advertisement

Be part of the discussion at the 2025 Compliance Summit!

Get updates and analysis of all industry news!

Click the image below for more information