TAX CREDIT SPECIALIST EXAM SCRIPT 2025/ WITH ANSWERS
TAGGED A+ EXAM with Questions and Answers/Plus a Rationale
Updated 2026 A+/Instant Download PDF
EXAM COVERAGE
1. Low-Income Housing Tax Credit (LIHTC) Program Regulations and Section 42 Compliance
2. Tenant Income Certification (TIC) and Annual Recertification Procedures
3. Student Status Rules, Allowable Income Inclusions, and Exclusions
4. Minimum Set-Aside Tests (20-50 vs. 40-60) and Rent Restriction Calculations
5. Utility Allowances, Vacant Unit Rules, and Non-Revenue Space Compliance
6. Internal Revenue Service (IRS) Audits, Compliance Monitoring, and Corrective Actions
1. A site compliance manager is calculating annual household income for a prospective tenant
family applying for a Low-Income Housing Tax Credit (LIHTC) unit. The household consists of
an adult applicant, their minor child, and an adult dependent attending college part-time who
receives regular monthly financial gifts from a non-custodial parent. How should the compliance
specialist treat these financial gifts under HUD Handbook 4350.3 guidelines adopted for LIHTC
compliance?
A. Exclude the gifts entirely because they are irregular and non-recurring financial assistance.
B. Include the regular monthly financial gifts as part of annual gross income because they
are recurring cash contributions.
C. Count only 50 percent of the total annual gift amount as net family assets.
D. Classify the funds as temporary student financial aid and exempt them under IRS Section 127.
CORRECT ANSWER : B
Rationale: Under HUD Handbook 4350.3 guidelines used for LIHTC income verification,
regular and recurring cash contributions or gifts received from outside sources on behalf of a
household member must be included in annual gross income. Option A is incorrect because
, regular monthly gifts are considered recurring. Option C and D misapply asset and student aid
rules, respectively.
2. A property participating in the Low-Income Housing Tax Credit program elected the 40-60
minimum set-aside test. During an annual file audit, the compliance specialist discovers that a
low-income designated unit has experienced consecutive tenant turnover, and the current tenant's
income now exceeds 140 percent of the current applicable median gross income limit at the time
of recertification. What specific regulatory rule governs this situation?
A. The unit immediately loses its tax credit status and incurs a severe recapture penalty.
B. The Next Available Unit Rule (NAUR) applies, requiring the next available comparable
unit in the building to be rented to a qualified low-income household.
C. The tenant must be evicted within thirty days to avoid non-compliance points.
D. The owner may permanently convert the unit to market-rate status without replacing it.
CORRECT ANSWER : B
Rationale: Under IRC Section 42, when an existing low-income tenant's income rises above 140
percent of the current income limit upon recertification, the unit remains a low-income unit as
long as the Next Available Unit Rule (NAUR) is followed for any comparable or larger unit of
comparable size in the same building. Option A and C are incorrect because the unit does not
immediately lose status nor require immediate eviction, and Option D violates minimum set-
aside maintenance.
3. A compliance specialist is reviewing asset information for an elderly applicant. The applicant
holds a cash value life insurance policy, a certificate of deposit with a penalty for early
withdrawal, and a revocable trust where the applicant is the sole beneficiary. Which of these
assets should be excluded from the asset calculation under LIHTC guidelines?
A. The certificate of deposit because it carries an early withdrawal penalty.
B. None of these assets are excluded; all must be evaluated for cash value and imputed
income.
C. The cash value life insurance policy because it is an insurance product.
D. The revocable trust because control of the trust is retained by the applicant.
CORRECT ANSWER : B
Rationale: Under Section 42 and HUD asset rules, cash value life insurance policies, certificates
of deposit, and revocable trusts where the applicant retains access or control are all counted as
net family assets. Option A, C, and D incorrectly assume standard financial instruments are
, exempt, whereas only necessary personal property, irrevocable trusts under specific conditions,
and term life insurance are typically excluded.
4. A newly constructed 100-unit apartment building utilizing the LIHTC program has elected the
20-50 minimum set-aside. To maintain initial compliance, what is the exact minimum number of
residential units that must be rent-restricted and occupied by individuals whose income is 50
percent or less of the area median gross income?
A. 20 units
B. 20 units, provided all other qualification criteria are fully satisfied.
C. 40 units
D. 50 units
CORRECT ANSWER : B
Rationale: The 20-50 minimum set-aside requires that at least 20 percent of the residential units
in the project be both rent-restricted and occupied by individuals with incomes at or below 50
percent of the area median gross income (AMGI). Therefore, in a 100-unit building, 20 units
meet this threshold. Option C and D represent configurations for the 40-60 set-aside or incorrect
interpretations.
5. A tenant family in a LIHTC property experiences a change in household composition due to a
marriage occurring six months after initial move-in. The new spouse moves into the unit. What is
the mandatory compliance requirement regarding this adult addition?
A. The addition is prohibited, and the spouse must apply for a separate unit.
B. The new adult household member must undergo a full criminal background, credit, and
income verification process to ensure combined household income complies with program
limits.
C. The property management may automatically add the spouse without verifying income until
the next annual recertification cycle.
D. The unit's designation immediately shifts to market-rate without impacting the building's set-
aside.
CORRECT ANSWER : B
Rationale: When a new adult member joins an existing household in a LIHTC unit, management
must screen and verify their income and assets to evaluate total household income relative to
current limits, ensuring the unit remains qualified. Option A is overly restrictive, Option C risks
compliance violations by unverified income intake, and Option D is incorrect.
, 6. A tax credit specialist is determining the maximum allowable rent for a 2-bedroom rent-
restricted unit in a property located in a designated metropolitan statistical area. The gross rent
must not exceed what percentage of the imputed income limitation applicable to such a unit?
A. 20 percent of the annual income limitation divided by 12.
B. 30 percent of the imputed income limitation applicable to the unit based on assumed
household size.
C. 40 percent of the actual gross household income of the residing tenant.
D. 50 percent of the area median gross income adjusted for actual family size.
CORRECT ANSWER : B
Rationale: LIHTC gross rent limits are calculated as 30 percent of the imputed income limitation
for the respective bedroom size (assuming 1.5 persons per bedroom). Option A, C, and D use
incorrect percentages or flawed baseline metrics that violate IRS Section 42 rent restriction
formulas.
7. A property manager needs to establish the utility allowance for tenant-paid utilities in a building
receiving low-income housing tax credits. Which of the following sources is considered
acceptable by the IRS for establishing utility allowances?
A. Estimating utility costs based on the property manager's personal historical averages from
neighboring unmanaged properties.
B. Utilizing the local Public Housing Authority (PHA) utility allowance schedule or
obtaining a written estimate from the local utility provider.
C. Asking the prospective tenants to provide a verbal estimate of their expected monthly
electrical bill.
D. Applying a flat 10 percent reduction across all unit types regardless of regional utility rate
fluctuations.
CORRECT ANSWER : B
Rationale: IRS regulations permit specific sources for utility allowances in LIHTC properties,
most notably the local Public Housing Authority schedule, utility company estimates, HUD
utility model estimates, or an energy consumption model prepared by a licensed engineer.
Options A, C, and D rely on arbitrary or unverified estimation methods that fail regulatory audit
standards.
8. When auditing student households for LIHTC qualification, a compliance specialist encounters
an applicant household consisting of two full-time undergraduate students who are not married to
TAGGED A+ EXAM with Questions and Answers/Plus a Rationale
Updated 2026 A+/Instant Download PDF
EXAM COVERAGE
1. Low-Income Housing Tax Credit (LIHTC) Program Regulations and Section 42 Compliance
2. Tenant Income Certification (TIC) and Annual Recertification Procedures
3. Student Status Rules, Allowable Income Inclusions, and Exclusions
4. Minimum Set-Aside Tests (20-50 vs. 40-60) and Rent Restriction Calculations
5. Utility Allowances, Vacant Unit Rules, and Non-Revenue Space Compliance
6. Internal Revenue Service (IRS) Audits, Compliance Monitoring, and Corrective Actions
1. A site compliance manager is calculating annual household income for a prospective tenant
family applying for a Low-Income Housing Tax Credit (LIHTC) unit. The household consists of
an adult applicant, their minor child, and an adult dependent attending college part-time who
receives regular monthly financial gifts from a non-custodial parent. How should the compliance
specialist treat these financial gifts under HUD Handbook 4350.3 guidelines adopted for LIHTC
compliance?
A. Exclude the gifts entirely because they are irregular and non-recurring financial assistance.
B. Include the regular monthly financial gifts as part of annual gross income because they
are recurring cash contributions.
C. Count only 50 percent of the total annual gift amount as net family assets.
D. Classify the funds as temporary student financial aid and exempt them under IRS Section 127.
CORRECT ANSWER : B
Rationale: Under HUD Handbook 4350.3 guidelines used for LIHTC income verification,
regular and recurring cash contributions or gifts received from outside sources on behalf of a
household member must be included in annual gross income. Option A is incorrect because
, regular monthly gifts are considered recurring. Option C and D misapply asset and student aid
rules, respectively.
2. A property participating in the Low-Income Housing Tax Credit program elected the 40-60
minimum set-aside test. During an annual file audit, the compliance specialist discovers that a
low-income designated unit has experienced consecutive tenant turnover, and the current tenant's
income now exceeds 140 percent of the current applicable median gross income limit at the time
of recertification. What specific regulatory rule governs this situation?
A. The unit immediately loses its tax credit status and incurs a severe recapture penalty.
B. The Next Available Unit Rule (NAUR) applies, requiring the next available comparable
unit in the building to be rented to a qualified low-income household.
C. The tenant must be evicted within thirty days to avoid non-compliance points.
D. The owner may permanently convert the unit to market-rate status without replacing it.
CORRECT ANSWER : B
Rationale: Under IRC Section 42, when an existing low-income tenant's income rises above 140
percent of the current income limit upon recertification, the unit remains a low-income unit as
long as the Next Available Unit Rule (NAUR) is followed for any comparable or larger unit of
comparable size in the same building. Option A and C are incorrect because the unit does not
immediately lose status nor require immediate eviction, and Option D violates minimum set-
aside maintenance.
3. A compliance specialist is reviewing asset information for an elderly applicant. The applicant
holds a cash value life insurance policy, a certificate of deposit with a penalty for early
withdrawal, and a revocable trust where the applicant is the sole beneficiary. Which of these
assets should be excluded from the asset calculation under LIHTC guidelines?
A. The certificate of deposit because it carries an early withdrawal penalty.
B. None of these assets are excluded; all must be evaluated for cash value and imputed
income.
C. The cash value life insurance policy because it is an insurance product.
D. The revocable trust because control of the trust is retained by the applicant.
CORRECT ANSWER : B
Rationale: Under Section 42 and HUD asset rules, cash value life insurance policies, certificates
of deposit, and revocable trusts where the applicant retains access or control are all counted as
net family assets. Option A, C, and D incorrectly assume standard financial instruments are
, exempt, whereas only necessary personal property, irrevocable trusts under specific conditions,
and term life insurance are typically excluded.
4. A newly constructed 100-unit apartment building utilizing the LIHTC program has elected the
20-50 minimum set-aside. To maintain initial compliance, what is the exact minimum number of
residential units that must be rent-restricted and occupied by individuals whose income is 50
percent or less of the area median gross income?
A. 20 units
B. 20 units, provided all other qualification criteria are fully satisfied.
C. 40 units
D. 50 units
CORRECT ANSWER : B
Rationale: The 20-50 minimum set-aside requires that at least 20 percent of the residential units
in the project be both rent-restricted and occupied by individuals with incomes at or below 50
percent of the area median gross income (AMGI). Therefore, in a 100-unit building, 20 units
meet this threshold. Option C and D represent configurations for the 40-60 set-aside or incorrect
interpretations.
5. A tenant family in a LIHTC property experiences a change in household composition due to a
marriage occurring six months after initial move-in. The new spouse moves into the unit. What is
the mandatory compliance requirement regarding this adult addition?
A. The addition is prohibited, and the spouse must apply for a separate unit.
B. The new adult household member must undergo a full criminal background, credit, and
income verification process to ensure combined household income complies with program
limits.
C. The property management may automatically add the spouse without verifying income until
the next annual recertification cycle.
D. The unit's designation immediately shifts to market-rate without impacting the building's set-
aside.
CORRECT ANSWER : B
Rationale: When a new adult member joins an existing household in a LIHTC unit, management
must screen and verify their income and assets to evaluate total household income relative to
current limits, ensuring the unit remains qualified. Option A is overly restrictive, Option C risks
compliance violations by unverified income intake, and Option D is incorrect.
, 6. A tax credit specialist is determining the maximum allowable rent for a 2-bedroom rent-
restricted unit in a property located in a designated metropolitan statistical area. The gross rent
must not exceed what percentage of the imputed income limitation applicable to such a unit?
A. 20 percent of the annual income limitation divided by 12.
B. 30 percent of the imputed income limitation applicable to the unit based on assumed
household size.
C. 40 percent of the actual gross household income of the residing tenant.
D. 50 percent of the area median gross income adjusted for actual family size.
CORRECT ANSWER : B
Rationale: LIHTC gross rent limits are calculated as 30 percent of the imputed income limitation
for the respective bedroom size (assuming 1.5 persons per bedroom). Option A, C, and D use
incorrect percentages or flawed baseline metrics that violate IRS Section 42 rent restriction
formulas.
7. A property manager needs to establish the utility allowance for tenant-paid utilities in a building
receiving low-income housing tax credits. Which of the following sources is considered
acceptable by the IRS for establishing utility allowances?
A. Estimating utility costs based on the property manager's personal historical averages from
neighboring unmanaged properties.
B. Utilizing the local Public Housing Authority (PHA) utility allowance schedule or
obtaining a written estimate from the local utility provider.
C. Asking the prospective tenants to provide a verbal estimate of their expected monthly
electrical bill.
D. Applying a flat 10 percent reduction across all unit types regardless of regional utility rate
fluctuations.
CORRECT ANSWER : B
Rationale: IRS regulations permit specific sources for utility allowances in LIHTC properties,
most notably the local Public Housing Authority schedule, utility company estimates, HUD
utility model estimates, or an energy consumption model prepared by a licensed engineer.
Options A, C, and D rely on arbitrary or unverified estimation methods that fail regulatory audit
standards.
8. When auditing student households for LIHTC qualification, a compliance specialist encounters
an applicant household consisting of two full-time undergraduate students who are not married to
