LIHTC SELF STUDY QUESTIONS AND
ANSWERS (GRADED A+)
Housing tax credit for a year = [_________] ? - ANSWER-"applicable percentage" of
"qualified basis" of each "qualified low-income building"
Qualified basis = [_______] - ANSWER-"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 [__] - ANSWER-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 happens if the income of the occupant of a low-income unit rises above the
applicable income limitation? - ANSWER-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? -
ANSWER-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 a qualified low-income building? - ANSWER-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? - ANSWER-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"? - ANSWER-1. rent restricted and
2. satisfy one of the minimum set-aside tests of 42g
What are the 3 minimum set-aside tests? - ANSWER-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? -
ANSWER-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 is the rent restriction under the 20-50 test and 40-60 test? - ANSWER-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? - ANSWER-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? - ANSWER-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? - ANSWER-no, its irrevocable
When must the TP provide the complete, initial designation of all units taken into
account for the average income test? - ANSWER-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 is the substantial rehabilitation test for the 70% PV Housing Tax Credit? -
ANSWER-TP must spend the greater of:
1: 20% of the building's adjusted basis determined on the first day of any 24 month
period chosen by the TP, or
2: $6k, on average, per low-income unit
What types of projects are eligible for the 30% PV Housing Tax Credit? - ANSWER-
Generally, available for acquisition expenditures only if the substantial rehab test has
been satisfied and the building is eligible for the 70% PV Housing Tax Credit for rehab
expenditures
Can rehab and new construction expenditures still receive the 70% PV Housing Tax
Credit if tax-exempt financing is used for only the acquisition of a building(s)? -
ANSWER-yes!
Buildings located in "qualified census tracts", "difficult development areas", and any
building designated by a State housing agency are eligible to receive an additional tax
benefit.
What is it? - ANSWER-Buildings located in "qualified census tracts", "difficult
development areas", and any building designated by a State housing agency are
eligible to receive a 30% increase in the basis attributable to new construction or
rehabilitation for Housing Tax Credits.
EXAMPLE:
ANSWERS (GRADED A+)
Housing tax credit for a year = [_________] ? - ANSWER-"applicable percentage" of
"qualified basis" of each "qualified low-income building"
Qualified basis = [_______] - ANSWER-"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 [__] - ANSWER-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 happens if the income of the occupant of a low-income unit rises above the
applicable income limitation? - ANSWER-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? -
ANSWER-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 a qualified low-income building? - ANSWER-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? - ANSWER-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"? - ANSWER-1. rent restricted and
2. satisfy one of the minimum set-aside tests of 42g
What are the 3 minimum set-aside tests? - ANSWER-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? -
ANSWER-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 is the rent restriction under the 20-50 test and 40-60 test? - ANSWER-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? - ANSWER-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? - ANSWER-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? - ANSWER-no, its irrevocable
When must the TP provide the complete, initial designation of all units taken into
account for the average income test? - ANSWER-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 is the substantial rehabilitation test for the 70% PV Housing Tax Credit? -
ANSWER-TP must spend the greater of:
1: 20% of the building's adjusted basis determined on the first day of any 24 month
period chosen by the TP, or
2: $6k, on average, per low-income unit
What types of projects are eligible for the 30% PV Housing Tax Credit? - ANSWER-
Generally, available for acquisition expenditures only if the substantial rehab test has
been satisfied and the building is eligible for the 70% PV Housing Tax Credit for rehab
expenditures
Can rehab and new construction expenditures still receive the 70% PV Housing Tax
Credit if tax-exempt financing is used for only the acquisition of a building(s)? -
ANSWER-yes!
Buildings located in "qualified census tracts", "difficult development areas", and any
building designated by a State housing agency are eligible to receive an additional tax
benefit.
What is it? - ANSWER-Buildings located in "qualified census tracts", "difficult
development areas", and any building designated by a State housing agency are
eligible to receive a 30% increase in the basis attributable to new construction or
rehabilitation for Housing Tax Credits.
EXAMPLE:
