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10% Tests

Passing the 10% Test is a critical milestone for all entities that have received an award of low-income housing tax credits (LIHTC). In order to meet the 10% Test for low-income housing tax credits, a development must incur 10% of its reasonably expected basis (REB) by the date prescribed by their state’s tax credit allocating entity. REB is the estimated land and depreciable property (not just basis eligible property) expected to be part of the development. This is an important test because failure to satisfy it can cause a development to forfeit its credits.

Generally, a development must be placed in service in the year that the low-income housing tax credits are awarded by the tax credit allocating agency. A carryover allocation can extend the placed in service date to the end of the second calendar year after the year that a carryover allocation is made. For any development receiving an allocation of 2020 credits in Pennsylvania that was not placed in service by the end of 2020, a Carryover Allocation Agreement must have been previously executed and submitted to the Pennsylvania Housing Finance Agency (PHFA) along with other required information in 2020. Having a valid Carryover Allocation Agreement in place will give developments that received an allocation of 2020 low-income housing tax credits until December 31, 2022, to be placed in service as long as all other requirements, including meeting the 10% Test, are met.

2020 Low Income Housing Tax Credits

Developments receiving a reservation of 2020 low-income housing tax credits in Pennsylvania must incur 10% of their REB on or before October 26, 2021, and have until November 9, 2021, to submit the required information to PHFA.

McKonly & Asbury is a leader in accounting for affordable housing developments in Pennsylvania. IRS and PHFA regulations require specialized knowledge when preparing a 10% Test. This test is critical in the tax credit process, and it is important to work with someone who has the experience and expertise to ensure that your Test is accurate and your credits are not lost. The M&A Team has the audit and tax expertise and experience needed to complete an accurate 10% Test. For more information, please contact our Affordable Housing Team at

The information presented in this post is intended solely for informational purposes and should not be construed as accounting advice from McKonly & Asbury, LLP.


About the Author

Elizabeth Harriger

Elizabeth is a Partner with McKonly & Asbury as well as the Director of our firm’s Affordable Housing Services. She has over twenty years of extensive audit, tax, and consulting experience in the affordable housing industry. Elizabe… Read more

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