Cost Certifications for Low-Income Housing Tax Credit Partnerships
Owners of low-income housing tax credit (LIHTC) properties need to complete specific requirements in order to receive the LIHTCs they are awarded. The cost certification is one such requirement.
A cost certification is necessary to establish the eligible basis by the state’s tax credit allocating agency as required by the Internal Revenue Service. The cost certification is required for the IRS Form 8609 to be issued, which allows the owner to claim the LIHTCs. This report certifies how much money was spent on the construction and development of the property.
Cost certifications include details of specific cost categories as defined by the state’s tax credit allocating agency. States may have specific forms that they want used in the cost certification that will detail various cost categories, such as construction, architect, engineering, etc. All costs of the development are included in the cost certification and the report is used to calculate eligible basis which is the amount of cost that tax credits are calculated on. Generally, costs that are depreciable are includable in eligible basis. The state tax credit allocating agency can limit or exclude certain costs from eligible basis even though they are depreciable. For example, Pennsylvania’s state tax credit allocating agency (the Pennsylvania Housing Finance Agency) currently limits engineering fees allowable in eligible basis to 20% of the total site work and offsite improvements listed in the tax credit application budget that was submitted. So even though all of the engineering fees would likely be depreciable, the amount includable in eligible basis is limited. Cost certifications must be certified by a Certified Public Accountant and it’s important to work with one who understands not only the LIHTC program, but also the nuances of the state tax credit allocating agency.
A cost certification is required within a timeframe set by the state’s tax credit allocating agency. It’s important to anticipate and be prepared to meet this deadline. Delays can cause the owner to incur costly late fees from or extension payments to the state tax credit allocating agency. Often the cost certification is tied to an equity installment and the longer the cost certification is delayed, the longer it will take to get that funding.
Owners should start preparing for the cost certification during the predevelopment phase of the LIHTC property. Good records should be kept which include documentation such as invoices and contracts, as well as proper classification of all costs. The owner should also be monitoring to ensure that enough costs are spent to have sufficient eligible basis to receive all of their awarded tax credits.
Preparing for a LIHTC cost certification requires careful documentation, organization, and compliance with IRS and state tax credit allocating agency requirements. McKonly & Asbury, LLP is a leader in accounting for affordable housing developments and our team has the specialized knowledge to help ensure you comply with reporting requirements relating to the preparation of LIHTC Cost Certifications. For more information on this service and more, be sure to visit our Affordable Housing page, and don’t hesitate to contact us.
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 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
