LIHTC Financial Management & Tax Credit Allocation 2 — Questions and Answers
Question 1: California's TCAC uses a 'tie-breaker' scoring system when projects have equal scores. What is the primary tie-breaker used?
- Lowest requested credit per unit (Correct answer)
- Earliest application submission date
- Highest percentage of affordable units
- Largest number of total units
Correct answer: Lowest requested credit per unit
TCAC uses the lowest credit per unit as the primary tie-breaker to maximize the efficient use of limited tax credit resources.
Question 2: Under IRS rules, what is the minimum number of years a LIHTC project must remain affordable after the initial 15-year compliance period?
- 15 additional years (30 years total) (Correct answer)
- 10 additional years (25 years total)
- 5 additional years (20 years total)
- No additional requirement beyond 15 years
Correct answer: 15 additional years (30 years total)
The extended use agreement requires an additional 15 years of affordability beyond the initial compliance period, for a minimum of 30 years total.
Question 3: A developer proposes a LIHTC project with a total development cost of $10 million. The eligible basis is $8 million. What is the maximum 9% credit the project could generate annually (before any basis adjustments)?
- $720,000 (Correct answer)
- $900,000
- $800,000
- $660,000
Correct answer: $720,000
The 9% credit applied to the $8 million eligible basis yields $720,000 annually ($8,000,000 × 0.09).
Question 4: In California LIHTC underwriting, what does TCAC's 'income averaging' election allow a project to do?
- Serve households at mixed AMI levels averaging to 60% AMI (Correct answer)
- Average income across multiple tax years
- Set rents at the median of all tenant incomes
- Average utility allowances across unit types
Correct answer: Serve households at mixed AMI levels averaging to 60% AMI
Income averaging allows projects to mix units at different AMI levels (e.g., 40%, 60%, 80%) as long as the average does not exceed 60% AMI.
Question 5: Which California state program often pairs with LIHTC to provide construction financing for affordable housing projects?
- CalHFA Multifamily Programs (Correct answer)
- California Enterprise Zone Credits
- Cal/OSHA Construction Grants
- California PACE Financing
Correct answer: CalHFA Multifamily Programs
CalHFA (California Housing Finance Agency) multifamily programs frequently provide construction and permanent loans to complement LIHTC equity.
Question 6: What is the purpose of the 'basis boost' (130% basis adjustment) available to projects in TCAC-designated Difficult Development Areas?
- To increase the eligible basis and generate more tax credits (Correct answer)
- To reduce the required debt coverage ratio
- To extend the compliance period to 40 years
- To lower the minimum set-aside requirement
Correct answer: To increase the eligible basis and generate more tax credits
The 130% basis boost multiplies eligible basis by 1.3, allowing projects in high-cost DDAs to generate up to 30% more tax credits.
Question 7: When a LIHTC property is sold during the compliance period, what must the buyer agree to as a condition of the sale?
- Assume the existing extended use agreement and affordability restrictions (Correct answer)
- Pay back all tax credits already claimed
- Renegotiate rents with TCAC within 90 days
- Requalify all tenants within 6 months
Correct answer: Assume the existing extended use agreement and affordability restrictions
Buyers must assume the extended use agreement, ensuring affordability restrictions remain in place regardless of ownership changes.
LIHTC Financial Management & Tax Credit Allocation 2
California's TCAC uses a 'tie-breaker' scoring system when projects have equal scores.
What is the primary tie-breaker used?