With many Low-Income Housing Tax Credit (LIHTC) developments entering their extended use period, it is important to understand the credit period, compliance period, and the extended use period. Many compliance requirements take place and overlap during these timeframes. It is also very important to understand if these periods are related to a building or project.
The Credit Period
The credit period is the 10-year period over which the tax credits are claimed by the owner of the development. This period starts when the first-year credits are claimed. It can be when the building is placed in service or may be deferred until the year after the building is placed in service. The start date of the credit period triggers the compliance period to begin.
The Compliance Period
This period begins the same year as the credit period mentioned above but continues for an additional five years past the end of the credit period. During the 15-year period, the development must comply with various LIHTC requirements in accordance with Section 42 of the Internal Revenue Code. If you can remember “IRS,” you can remember the basic provisions necessary to maintain compliance with LIHTC rules.
An Owner/Agent must:
Income limits: Rent to income qualified households.
Rent limits: Keep rents below required limits.
Safe and Sanitary: Meet physical standards (keep property “decent, safe, and sanitary”).
During this period, owners could have tax credits taken away or “recaptured” if the property fails to comply with LIHTC regulations.
The Extended Use Period
Starting with LIHTC allocations after 1989, the owner must agree to provide affordable housing for at least an additional 15 years after the initial compliance period; this is known as the extended use period. As with the other periods mentioned above, the extended use period begins with the credit period (first-year credits are claimed) and then continues for at least 29 additional years.
The IRS will no longer monitor the LIHTC properties after the compliance period. However, it requires owners to commit to the LIHTC program for a minimum of 30 years. State Housing Finance Agencies (HFAs) will continue to monitor the property through the extended use period indicated in the Indenture of Restrictive Covenants for the property and will impose penalties as necessary. The 30-year period is a minimum. Some properties may have an extended use period beyond 30 years.
During this period, an owner cannot have tax credits taken away or “recaptured” if there are findings of noncompliance. However, the HFA can still write the owner/agent notifying them of the findings. If no response is received by the HFA in 90 days, there can be repercussions, such as a negative impact on the scoring of future funding rounds for Low-Income Housing Tax Credits.
In the extended use period, which many properties are now entering, it is important for owner/agents to know what eligibility reporting requirements remain. The following is a list of requirements that the owner/agent must meet during the extended use period:
- Owners Certificate of Continuing Compliance – The owner/agent is still required to submit annually the Owner’s Certificate of Continuing Compliance with its attachment, the Rental Schedule, prior to January 31st.
- Annual Recertification – An Alternate Certification form must be completed for each household on an annual basis, as annual recertifications are no longer required. However, annual recertifications may be required for other types of financing on the property.
- Student Households – Households will no longer be excluded because they are comprised in their entirety by students. NOTE: If the owner is planning on seeking a new allocation of tax credits, they should continue to implement the Full-time Student Rule during the extended use period, so the existing residents will qualify for the new allocation of low-income housing tax credits.
- Physical Inspection of Property – At the discretion of the HFA, physical inspections will be performed on the LIHTC units at least every five (5) years.
The credit, compliance, and extended use periods all start when the first-year credits are claimed for a Building. Therefore, all three periods are specific to each Building Identification Number (BIN).
Please see below a helpful example showing how to determine when the various LIHTC periods end.
Determining the End of the LIHTC Periods
First Year of the credit period: 2023
End of the credit period: 2032 (2023 + 9 years for a total of 10 years)
End of compliance period: 2037 (2023 + 14 years for a total of 15 years)
End of extended use period: 2052 (2023 + 29 years for a minimum of 30 Years)
Note: Each building has its own credit, compliance, and extended use periods, even if they are part of the same multi-building project.
Owners and Management Agents should be well trained in understanding the LIHTC program requirements as they relate to maintaining compliance during the above-mentioned periods.
Creating and maintaining affordable housing communities is a complex task. Numerous state and federal requirements must be followed – both during development and for years thereafter. M&L Compliance Management clarifies LIHTC, Federal HOME, HUD, and certification requirements you must follow to remain compliant. For more information on these services be sure to visit our Property Compliance 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 consulting advice from M&L Compliance or McKonly & Asbury, LLP.
About the Author
Susie joined MLCM, McKonly & Asbury’s affiliate property compliance company, as a Compliance Manager in December 2022. A veteran in her field, Susie has more than 20 years of experience in the industry.