As a taxpayer involved in the construction industry, you may want to consider taking advantage of the low-income housing credit. You may claim a credit for each residential rental building you place in service during the year in certain low income housing projects.
To qualify for the low income housing credit, the building must be located in a low-income housing project that meets one of the following two requirements:
(1) 20 percent or more of the residential units in the project are both rent-restricted and occupied by individuals whose income is 50 percent or less of the median gross income for the area; or
(2) 40 percent of the residential units in the project are both rent-restricted and occupied by individuals whose income is 60 percent or less of the median gross income for the area.
The low-income housing credit is generally allowed only for new buildings. However, rehabilitation expenditures you pay or incur for an existing building generally are treated as a separate new building.
The amount of the credit is equal to an applicable percentage based on the type of low-income housing project in which the building is located, multiplied by the qualified basis of the building. You generally claim the credit over a 10-year credit period, starting with the year the building is placed in service.
The IRS prescribes the applicable percentages each month. The prescribed percentages for any month are percentages that will yield amounts of credit over a 10-year period that have a present value equal to:
(1) 70 percent of the qualified basis of a new building that is not federally subsidized for the tax year; and
(2) 30 percent of the qualified basis of any other building. For buildings placed in service after July 30, 2008, and not federally subsidized, the minimum applicable percentage for computing the credit is 9 percent.
A building’s qualified basis of a building is computed by determining the percentage of the building that consists of low-income housing and multiplying that percentage by the taxpayer’s adjusted basis in the building as of the end of the first tax year of the credit period.
You may have to recapture all or part of the credit if there is a reduction in the qualified basis of the building during a 15-year compliance period or if there is a disposition of the building (or an interest in the building) during this 15-year period.
Please call me at your convenience if you wish to discuss this Low Income Housing Credit or any other tax issue relating to your business.
Please contact the office of Don Fitch Accountancy at (760)567-3110 or Email Don.Fitch@CPA.com if you have any questions or would like additional information.
DON FITCH, CPA
74478 Highway 111 #3
Palm Desert, CA 92260
Toll Free: (877)CPA-Help or (877)272-4357
P.S. My firm is based upon referrals. Please feel free to refer my firm to anyone you know that is looking for a new CPA and/or tax preparer. Thank you in advance.
(Updated 05012021-1 320-782)