Incomes

The household’s annual income at the date of move-in must fall within the income limit for that household’s AMI designation, number of household members, and county or state. Then, the rent can be determined based on the same factors and number of bedrooms. According to the Hold Harmless rule, once a project is placed in service, if the income limits decrease in the county or state, the project may continue to use the original income limits.

Any low-income units must be rent-restricted or set at a rate that does not exceed 30 percent of the household’s income.

Post 15 Year LIHTC Compliance

It is important to note that compliance on a LIHTC property might change but does not go away once a LIHTC property reaches the 15-year Low-Income Housing Tax Credit compliance period, or “Year 15.” There are often longer-term restrictions outlined in LURAs or Restricted Use Covenants (RUCs).

Significance of Year 15 

In Year 15, projects financed with tax credits are eligible for sale to their sponsors. Year 10 in the life of a tax credit deal is an ideal time to begin planning and taking action. Tax Credit compliance ends on the last day of the 15th year since tax credits were taken (placed in service)

Year 15 work is generally handled in the asset management or development divisions of an organization or sometimes, depending on the nature of the transaction, both divisions will be involved. 

Taking your project through the Year 15 process: 

Preparing for Year 15

The first step of preparation for Year 15 begins when an organization is negotiating the ownership agreement with the syndicator or limited partner prior to construction or rehabilitation of the rental community. Early preparation and understanding the options that will be available to the organization in the future are important to having a smooth transition. Nonprofit organizations should negotiate exit strategies which include entering into a right of first refusal to purchase the property and/or a right to buy out the investor limited partner.

If it is not in the partnership agreement and the limited partner does not want to exit, you may need to seek outside legal counsel. 

Noncompliance

When potential or confirmed noncompliance is identified by an auditor or funding agency, the identified issues must be sufficiently corrected and documented by the owner within an agency’s required timeframes. Typically, the Compliance Officer or program reviewer will notify the property owner of the non-compliance and specify a correction period. By the end of the correction period, the owner must submit a complete response and submit supporting documentation to demonstrate that noncompliance has been cured. When a complete response is received, the agency will confirm whether the noncompliance has been resolved and determine if any of the specific findings or deficiencies must be reported to other agencies.

The following may mean you are out of compliance with LIHTC: