Anyone who has worked at an affordable property knows how cumbersome recordkeeping can be. There are required records to keep, as well as specific time limits for keeping them. Under Treas. Reg. §1.42‐5(b), owners of IRC §42 projects are required to maintain records for each qualified low‐income building in a project for each year in the compliance period. Recordkeeping responsibilities include tenant files, unit occupancy tracking, and project files, such as data on the eligible basis. These records are extremely important to the validity of millions of investment dollars and the very valuable tax credits that accompany them.
What records are the owner required to keep?
- The total number of residential rental units in the building (including the number of bedrooms and the square footage of each unit)
- The percentage of residential rental units in the building that are low‐income units
- The rent charged on each residential rental unit in the building (including any utility allowances)
- The number of occupants in each low‐income unit, but only if rent is determined by the number of occupants in each unit under section 42(g)(2)
- The low‐income unit vacancies in the building and information that shows when, and to whom, the next available units were rented
- The annual income certification of each low‐income tenant per unit
- Documentation to support each low‐income tenant’s income certification
- The eligible basis and qualified basis of the building at the end of the first year of the credit period
- The character and use of the non-residential portion of the building included in the building’s eligible basis
How long are owners required to retain these records?
The LIHTC program has specific rules for retaining files during the 15-year compliance period.
The owner must retain the above records for the first year of the compliance period for at least 21 years beyond the due date (with extensions) of filing the federal income tax return. For years 2-15 of the compliance period, records must be retained for 6 years from the date taxes were filed for a compliance year.
For example, if your compliance period ends on December 31, 2020, Federal taxes for that year would be due on or before the filing deadline for 2021 (usually April 15th). If taxes were filed on April 15, 2021, and 2020 was the first year of your compliance period, all first-year files must be retained until December 31, 2041.
If the project is in compliance year 2-15, and taxes were filed on April 15, 2021 for tax year 2020, records would be kept until December 31, 2027.
The Compliance Period is the 15‐year period during which a project must satisfy all LIHTC requirements to avoid credit recapture. The compliance period begins with the year the owner takes the first-year credit.
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.