LIHTC SELF STUDY WITH VERIFIED
SOLUTIONS
Housing tax credit for a year = [_________] ? - Correct Answers -"applicable
percentage" of "qualified basis" of each "qualified low-income building"
Qualified basis = [_______] - Correct Answers -"applicable fraction" of "eligible basis"
I.e. the portion of the eligible basis attributable to low-income units = qualified basis
Eligible basis includes [__] and excludes [__] and reduced by [__] - Correct Answers -
Includes:
1. cost acquiring
2. cost of rehabilitating
3. cost of constructing building(s)
AKA - if it's depreciable, it's includable in EB
Excludes:
1. cost of land
Reduced by:
1. amount of federal grants financing construction/rehab costs
What is a qualified low-income building? - Correct Answers -Any building which is part
of a "qualified low-income housing project" at all times during the "compliance period."
When does the compliance period for a qualified low-income housing project begin and
end? - Correct Answers -Begins: first taxable year of the 10 year credit period
Ends: 15 taxable years later
Must qualify as a low-income housing project continuously for that 15 year period
What are the 2 things that a project must be in order to qualify as a "low-income housing
project"? - Correct Answers -1. rent restricted and
2. satisfy one of the minimum set-aside tests of 42g
The disproportionate unit rule does not apply to a non-low-income residential unit in the
building if:..? - Correct Answers -if:
,(1) The actual cost of such unit over the amount that would be the cost of the unit if the
average cost per square foot of low-income units in the building were subbed for the
cost or square foot of the unit ("hypothetical cost") is not greater than 15% of the
hypothetical cost, AND
(2) the TP elects to exclude from eligible basis of the building the excess amount from
(1)
So, only residential rental units are included in eligible basis. What is not considered to
be residential? - Correct Answers -Units provided for employees
Beyond purely residential rental units, what other facilities can be included in eligible
basis? - Correct Answers -"Functionally related and subordinate facilities" such as rec
centers, pools, parking, grilling, and other reasonable facilities all counts as residential
rental units, provided that there is not a separate fee for this use
What are the 3 minimum set-aside tests? - Correct Answers -1. 20-50 test: At least 20%
of the residential units in the project must be both rent-restricted and occupied by
tenants whose GI is 50% or less of the area median gross income (AMGI)
2. 40-60 test: At least 40% of the residential units in the project must be both rent-
restricted and occupied by tenants whose GI is 60% or less of AMGI
3. Average Income Test: 40% or more (25% if project located in certain high cost
housing areas) of the residential units in the project are rent-restricted and occupied by
tenants whose income does not exceed the imputed income limitation designated by the
taxpayer with respect to the respective unit
What is required of the imputed income limitations of the average income test? - Correct
Answers -Under the average income test, the TP must designate the imputed income
limitation for each unit and that imputed income limitation must be 20, 30, 40, 50, 60,
70, or 80% of AMGI with the average of the imputed income limitations for each unit
must not exceed 60% of AMGI.
NOTE: this essentially gets you to the same result as the 40-60 test, but with more
flexibility for AMGI percentages per unit
What happens if the income of the occupant of a low-income unit rises above the
applicable income limitation? - Correct Answers -Generally, the unit will continue to be
treated as a low-income unit if the income of the occupant initially satisfied the income
limitation and the unit continues to be rent restricted.
What happens if the income of the occupant of a low-income unit rises above the
applicable income limitation as designated by the TP under 20-50 or the 40-60 test? -
Correct Answers -The Applicable Income Limitation applies:
, The unit will continue to be treated as a low-income unit if the income of the occupants
of a low-income unit increases to not more than 140% of the income limitation
applicable to the unit.
If the income of the occupants increases above 140% of the applicable income
limitation, the unit will no longer qualify as a low-income unit if any residential rental unit
of comparable size or smaller in the building is occupied by a new resident whose
income exceeds the applicable income limitation. This is the "next available unit rule".
What is the rent restriction under the 20-50 test and 40-60 test? - Correct Answers -
Rent restriction is 30% of a tenant's imputed income limitation which is generally based
on the number of bedrooms in a unit
How does the 'next available unit rule' work for a TP who has elected the Average
Income Test? - Correct Answers -A unit ceases to be a low-income unit if:
(i) the income of an occupant of a low-income unit increases above 140% of the greater
of (A) 60% AMGI, or (B) the imputed income limitation designated by the TP with
respect to that unit (AKA the Applicable Imputed Income Limitation), and
(ii) any other residential rental unit in the building that is of comparable size or smaller
than that unit is occupied by a new tenant whose income exceeds the applicable
imputed income limitation
Under the next available unit rule for TP's who elected the average income test, how is
the applicable imputed income limitation determined? - Correct Answers -Ask if the new
tenant is occupying a low-income designated unit or a market-rate designated unit.
If the new tenant occupies a unit that was taken into account as a low-income unit prior
to becoming vacant: the applicable imputed income limitation is the limitation
designated with respect to the unit.
If the new tenant occupies a market-rate unit, the applicable imputed income limtiation
is the limitation that would have to be designated with respect to the unit in order for the
project to maintain average designations of 60% of AMGI or lower.
Can a TP switch which set-aside test they use? - Correct Answers -no, its irrevocable
When must the TP provide the complete, initial designation of all units taken into
account for the average income test? - Correct Answers -At the close of the first taxable
year of the credit period and no change to the designated imputed income limitations
may be made
What happens when the minimum set-aside requirement of the average income test is
failed? - Correct Answers -Failure to (1) satisfy the minimum set-aside requirement, and
(2) a residential rental unit in the building of comparable size, or smaller, than the unit
SOLUTIONS
Housing tax credit for a year = [_________] ? - Correct Answers -"applicable
percentage" of "qualified basis" of each "qualified low-income building"
Qualified basis = [_______] - Correct Answers -"applicable fraction" of "eligible basis"
I.e. the portion of the eligible basis attributable to low-income units = qualified basis
Eligible basis includes [__] and excludes [__] and reduced by [__] - Correct Answers -
Includes:
1. cost acquiring
2. cost of rehabilitating
3. cost of constructing building(s)
AKA - if it's depreciable, it's includable in EB
Excludes:
1. cost of land
Reduced by:
1. amount of federal grants financing construction/rehab costs
What is a qualified low-income building? - Correct Answers -Any building which is part
of a "qualified low-income housing project" at all times during the "compliance period."
When does the compliance period for a qualified low-income housing project begin and
end? - Correct Answers -Begins: first taxable year of the 10 year credit period
Ends: 15 taxable years later
Must qualify as a low-income housing project continuously for that 15 year period
What are the 2 things that a project must be in order to qualify as a "low-income housing
project"? - Correct Answers -1. rent restricted and
2. satisfy one of the minimum set-aside tests of 42g
The disproportionate unit rule does not apply to a non-low-income residential unit in the
building if:..? - Correct Answers -if:
,(1) The actual cost of such unit over the amount that would be the cost of the unit if the
average cost per square foot of low-income units in the building were subbed for the
cost or square foot of the unit ("hypothetical cost") is not greater than 15% of the
hypothetical cost, AND
(2) the TP elects to exclude from eligible basis of the building the excess amount from
(1)
So, only residential rental units are included in eligible basis. What is not considered to
be residential? - Correct Answers -Units provided for employees
Beyond purely residential rental units, what other facilities can be included in eligible
basis? - Correct Answers -"Functionally related and subordinate facilities" such as rec
centers, pools, parking, grilling, and other reasonable facilities all counts as residential
rental units, provided that there is not a separate fee for this use
What are the 3 minimum set-aside tests? - Correct Answers -1. 20-50 test: At least 20%
of the residential units in the project must be both rent-restricted and occupied by
tenants whose GI is 50% or less of the area median gross income (AMGI)
2. 40-60 test: At least 40% of the residential units in the project must be both rent-
restricted and occupied by tenants whose GI is 60% or less of AMGI
3. Average Income Test: 40% or more (25% if project located in certain high cost
housing areas) of the residential units in the project are rent-restricted and occupied by
tenants whose income does not exceed the imputed income limitation designated by the
taxpayer with respect to the respective unit
What is required of the imputed income limitations of the average income test? - Correct
Answers -Under the average income test, the TP must designate the imputed income
limitation for each unit and that imputed income limitation must be 20, 30, 40, 50, 60,
70, or 80% of AMGI with the average of the imputed income limitations for each unit
must not exceed 60% of AMGI.
NOTE: this essentially gets you to the same result as the 40-60 test, but with more
flexibility for AMGI percentages per unit
What happens if the income of the occupant of a low-income unit rises above the
applicable income limitation? - Correct Answers -Generally, the unit will continue to be
treated as a low-income unit if the income of the occupant initially satisfied the income
limitation and the unit continues to be rent restricted.
What happens if the income of the occupant of a low-income unit rises above the
applicable income limitation as designated by the TP under 20-50 or the 40-60 test? -
Correct Answers -The Applicable Income Limitation applies:
, The unit will continue to be treated as a low-income unit if the income of the occupants
of a low-income unit increases to not more than 140% of the income limitation
applicable to the unit.
If the income of the occupants increases above 140% of the applicable income
limitation, the unit will no longer qualify as a low-income unit if any residential rental unit
of comparable size or smaller in the building is occupied by a new resident whose
income exceeds the applicable income limitation. This is the "next available unit rule".
What is the rent restriction under the 20-50 test and 40-60 test? - Correct Answers -
Rent restriction is 30% of a tenant's imputed income limitation which is generally based
on the number of bedrooms in a unit
How does the 'next available unit rule' work for a TP who has elected the Average
Income Test? - Correct Answers -A unit ceases to be a low-income unit if:
(i) the income of an occupant of a low-income unit increases above 140% of the greater
of (A) 60% AMGI, or (B) the imputed income limitation designated by the TP with
respect to that unit (AKA the Applicable Imputed Income Limitation), and
(ii) any other residential rental unit in the building that is of comparable size or smaller
than that unit is occupied by a new tenant whose income exceeds the applicable
imputed income limitation
Under the next available unit rule for TP's who elected the average income test, how is
the applicable imputed income limitation determined? - Correct Answers -Ask if the new
tenant is occupying a low-income designated unit or a market-rate designated unit.
If the new tenant occupies a unit that was taken into account as a low-income unit prior
to becoming vacant: the applicable imputed income limitation is the limitation
designated with respect to the unit.
If the new tenant occupies a market-rate unit, the applicable imputed income limtiation
is the limitation that would have to be designated with respect to the unit in order for the
project to maintain average designations of 60% of AMGI or lower.
Can a TP switch which set-aside test they use? - Correct Answers -no, its irrevocable
When must the TP provide the complete, initial designation of all units taken into
account for the average income test? - Correct Answers -At the close of the first taxable
year of the credit period and no change to the designated imputed income limitations
may be made
What happens when the minimum set-aside requirement of the average income test is
failed? - Correct Answers -Failure to (1) satisfy the minimum set-aside requirement, and
(2) a residential rental unit in the building of comparable size, or smaller, than the unit
