LIHTC occupancy rule could curb credits

Summary#

The LIHTC Security Act would amend the Internal Revenue Code of 1986, which governs the federal Low-Income Housing Tax Credit (LIHTC). Its stated goal is to prevent certain alien individuals from occupying low-income units in LIHTC projects. The bill was introduced and referred to the House Ways and Means Committee; it is not law.

  • In states that elect to apply the new rule, a building generally could receive no LIHTC for a tax year unless every relevant low-income unit meets the occupancy requirement. A unit meets it only if none of its occupants is an alien individual outside the groups listed in section 214(a) of the Housing and Community Development Act of 1980.
  • For buildings eligible for the transition rule, the standard is 75% of relevant units for tax years before 2031. The rule covers certain buildings allocated credits before 2027 or financed in part with qualifying obligations issued before 2027.
  • States may elect to apply the occupancy rule for a calendar year and later years. If a state does not elect, the bill reduces by 5% the specified dollar amounts used for that state’s housing-credit allocation, and the occupancy rule does not apply there.
  • The occupancy rule would apply to tax years beginning after 2027; the state election and allocation reduction would apply to calendar years beginning after 2027.

What it means for you#

  • Renters: In states that elect the rule, occupancy by a person outside the referenced groups could put a building’s LIHTC at risk. The bill does not itself set an application or screening process, require a renter to leave, or create a direct penalty for the renter.
  • Owners of LIHTC buildings: To qualify for the credit, buildings in electing states would have to meet the occupancy test. The test applies to relevant low-income units and is assessed when a lease term begins in the specified calendar year.
  • States: A state may choose the occupancy rule or accept a 5% reduction in the specified housing-credit dollar amounts. An election continues in later years unless revoked with the Treasury Secretary’s consent.
  • Other residents and the public: The bill does not directly change rent limits, create new housing units, or establish a new housing program.

Money#

No publicly available information gives an estimate of the bill’s costs, revenue effects, or savings.

  • The bill does not appropriate money.
  • Owners could lose LIHTC for a building that fails the occupancy test in a state that elects the rule. The bill gives no estimate of how often that might happen or the amount of credits at risk.
  • States that do not elect face a 5% reduction in the specified allocation amounts. The bill provides no estimate of the resulting change in housing-credit projects or federal revenue.
  • Any costs for checking occupancy or administering state elections are not estimated.

What is unclear#

  • The bill does not define “alien individual.” It refers to groups listed in another law, but that law was not supplied, so their full scope could not be verified.
  • The bill does not set rules for checking occupants, handling changes during a lease, or resolving disputed eligibility.
  • It does not explain how an occupancy failure would affect a building’s credit in practice beyond saying no credit would be determined for that year.
  • The current text of the Internal Revenue Code provisions being amended was not supplied, so the exact change from current law and the full operation of the allocation amounts could not be verified.
  • No start date is specified for a state’s election process; the Treasury Secretary is to set its timing and manner.

Case for#

  • The bill appears intended to reserve LIHTC-supported units for people who meet the referenced housing-law categories.
  • A possible argument for the state choice is that states can decide whether to apply the occupancy rule or accept a smaller allocation.
  • The transition rule gives some existing projects a lower 75% threshold for a limited period.

Case against#

  • One concern is that a building’s tax credit could be affected by an occupant’s status, even though the bill does not explain how owners should verify eligibility or protect tenants from mistaken decisions.
  • In electing states, the general rule applies to all relevant units; the bill provides no estimate of how many buildings or residents could be affected.
  • A state that declines the occupancy rule faces a 5% reduction in the specified housing-credit amounts, which could limit the credits available for projects. The bill does not estimate that effect.