Low Income Housing Tax Credits Services

The Low-Income Housing Tax Credit (LIHTC) is a form of indirect federal subsidy established to encourage and finance new construction and rehabilitation of existing housing for low-income households. This federal income tax credit, administered by the states, is available to qualifying project owners for a 10-year period in addition to any assistance received through HUD’s multifamily assistance programs. To qualify for the Low-Income Housing Tax Credit, project owners must comply with the program’s requirements for a 15-year period.

A key difference between the Low-Income Housing Tax Credit program and HUD programs is the incentive to develop larger numbers of low-income units. Previously, once a minimum number of low-income units were developed, there was no incentive to exceed that number. The competitive-based allocation of LIHTCs administered by the states creates those incentives. The LIHTC program currently generates approximately 70,000 low-income units annually and has generated more than one million units since its inception. This results in almost $4 billion in annual budget authority for developing low-income housing.

Participants

The federal government allocates LIHTCs to each state based on a statutory amount per resident and the population of the state. The state tax credit allocation agency, which is usually the state housing finance agency, then awards tax credit allocations to participating developers based on competition and criteria set forth in the state’s housing qualified allocation plan. Unused credits are returned by the states to the federal government for future reallocation.

Developers typically sell the federal income tax credits to private investors who use them on their federal income tax returns. The LIHTC project is generally syndicated via limited partnerships through both private and public offerings. Under this arrangement, the investors provide project capital in exchange for the use of the credits. The developer has an obligation to the investor to ensure that the project complies with all requirements for the 15-year compliance period so that the credit is available to the investor for the entire 10-year credit period and that past credits are not recaptured.

Services

Kopin & Company, CPA, PC provides the following services in Low-Income Housing Tax Credit projects:

• Financial projections required by investors and syndicators.
• Cost certification audits required by IRS Code Section 42 to verify the reasonableness of the developmental and operational costs of the project and to verify which costs qualify for inclusion in the project’s eligible cost basis.
• Ten-percent carryover certifications which are required to verify that the building is placed in service before the end of the second calendar year following the calendar year in which the allocation is made and that the taxpayer’s basis is more than 10% of the of the project’s cost.
• Audited financial statements for the syndicators.
• Cash flow verification