The qualified contractual procedure allows LIHTC property owners to re-register after the first 15 years of the program. To use this process, the owner must inform the national tax agency of its intention to sell and the Agency would then have one year to find a qualified buyer. If no qualified buyer is manufactured within 365 days, the owner may be exempt from any restrictions and obligations of use. However, if the owner refuses to sell the property, he must comply with the expanded use restrictions. Note that this option is only available to homeowners who have not waived their right to apply for a qualified contract or who have entered into it if they sign their limited use contract with the HFA state. The Low Income Tax Credit (LIHTC – often pronounced “Lie-Tech,” a housing credit) is a dollar tax credit for the U.S. dollar for affordable residences. It was created as part of the Tax Reform Act of 1986 (TRA86) and encourages the use of private equity in the development of affordable housing for low-income Americans. The LIHTC represents the majority (approximately 90%) of all the affordable rental housing that was created today in the United States.  Since the maximum rent that can be calculated is based on median surface income (“AMI”), LIHTC housing remains unaffordable for many low-income tenants (<30% AMI).
Credits are also generally referred to as Section 42 credits for the applicable section of the internal income code. Tax credits are more attractive than tax deductions because the credits allow for a reduction in federal income tax by the taxpayer in dollars for dollars, while a tax deduction only provides for a reduction in taxable income. TRA86`s “passive loss rules” and similar tax changes have significantly reduced the value of tax credits and deductions for individual taxpayers. Less than 10% of current credit expenses are claimed by individual investors.  As a general rule, an investor remains in partnership at least during the compliance period, as a reduction in interest can also lead to the recapture of credits. An investor who wishes to leave the partnership before the end of the compliance period can reserve a guarantee loan to avoid a resumption of credit. Typically, the project owner accepts a higher percentage of low-income use than these minimum values, up to 100%. Low-income tenants may be charged a maximum rent of 30% of the maximum eligible income, which represents 60% of the median income of the region, adjusted for household size, as determined by HUD.