Low Income Housing Tax Credit Compliance
The Low Income Housing Tax Credit (LIHTC), also known as Section 42, was developed to provide incentives for private sector production of low-to-moderate income housing. The credits provide a mechanism for funding a wide range of developments, including new construction, substantial rehabilitation, moderate rehabilitation, acquisition, and repair by existing owners.
In Minnesota, the Minnesota Housing Finance Agency (MHFA) is the primary apportionment Agency of Housing Tax Credits. Qualified local cities and counties also have been designated by the Legislature as Suballocators of the tax credit. Affordable Housing Connections, Inc. has been designated as the agent to perform certain compliance monitoring functions by these Suballocators:
- Minneapolis CPED
- Saint Paul PED
- City of Rochester
- Saint Cloud HRA
- Washington County CDA
Each Suballocator develops and implements a Qualified Allocation Plan (QAP) for its portion of tax credits and issues a Tax Credit Compliance Monitoring Manual to direct owners and managing agents in tax credit policies and procedures. Suballocators directly notify the IRS about project noncompliance and corrective action taken using form 8823.
Section 42 Suballocator Contact Information & Manuals
New to the Low Income Housing Tax Credit?
The LIHTC program began in 1986 as part of the 1986 Tax Reform Act and provides a tax incentive to either construct or rehab affordable rental housing. You may have heard this program referred to using many different names/acronyms such as: HTC (Housing Tax Credit), Section 42, LIHTC (Low Income Housing Tax Credit), and Tax Credit to name a few.
This funding requires affordable housing projects to comply with income and rent restrictions, student rules and maintain the physical property. The LIHTC program requires annual monitoring for compliance with these federal regulations. To learn more about the LIHTC program please check out our available training courses.
LIHTC Compliance Forms & Reporting Tools
The Notice of Owner or Manager Contact Change document presents standardized operational definitions for the noncompliance categories listed on Form 8823 and is intended to provide consistent interpretation and application of Internal Revenue Code (IRC) Section 42 requirements among states and consistent reporting of noncompliance. Suballocator monitoring of compliance under the content of this guide began effective January 1, 2008.
GRH Verification Form
Minnesota Housing developed a new form called Housing Support and Rental Assistance Calculation Worksheet, along with guidance, to use for households receiving Housing Support (formerly known as Group Residential Housing or GRH). The worksheet will help identify whether the Housing Support received by the household should be included as income, and when or if, the Housing Support should be treated as rent assistance. The guidance provided by Minnesota Housing includes two examples of calculations and a sample copy of a Housing Support acceptance letter.
AHC suggests completing this worksheet for all households receiving Housing Support to check for correct rent calculations and public assistance income, especially if you have been cited for rent noncompliance. If the calculation proves out that the Housing Support can not be considered rent assistance, rent must be adjusted to comply with applicable rent limits. A copy of the completed form should be retained in the tenant file.
Section 42 Income & Rent Limits
2023 Section 42 limits have been published and are effective May 15, 2023.
The 2023 Tax Credit income and rent limits effective date is May 15, 2023. There is a forty-five (45) day grace period from the effective date to when the limits must be implemented. That grace period ends on July 17, 2023.
AHC Tenant Demographic Form
AHC does not have a “required” version. Owners may use the form MN Housing has developed.
Owners also may use their own form or a form required by another program that collects the same information.
Frequently Asked Questions
(Handbook 4350.3) Rev 1. Change 4. Chapter 5 of the HUD Occupancy Manual Requirements of Subsidized Multifamily Housing Programs is used for determining income from income sources and assets. Information on deductions, allowances, and calculating rent does not apply to Section 42.
Uniform Physical Condition Standards UPCS
The Uniform Physical Condition Standards (UPCS) is the standard for periodic physical inspections conducted for Section 42 and HOME Program projects. Become familiar with these standards to maintain your property and avoid findings. Effective January 1, 2008, findings from AHC physical inspections will be reported on IRS Form 8823, even if corrected, for the Section 42 Program. Noncompliance, whether corrected or not, with State and Local codes also may be reported to the IRS for the Section 42 Program and/or to the HOME Participating Jurisdiction (PJ). See this link for "Revised Dictionary of Deficiency Definitions" of the UPCS - Effective August 9, 2012.