LIHTC Financial Management & Tax Credit Allocation 3 — Questions and Answers
Question 1: A LIHTC investor receives tax credits over how many years after the project is placed in service?
- 10 years (Correct answer)
- 15 years
- 5 years
- 30 years
Correct answer: 10 years
LIHTC investors claim the annual credit over a 10-year credit period beginning the year the project is placed in service (or the following year).
Question 2: Under California's TCAC regulations, which of the following costs is generally NOT included in eligible basis?
- Land acquisition cost (Correct answer)
- Construction hard costs
- Architect and engineering fees
- Certain permanent financing fees
Correct answer: Land acquisition cost
Land acquisition costs are specifically excluded from eligible basis because land is not a depreciable asset.
Question 3: What is a 'pay-in schedule' in the context of LIHTC equity investments?
- The timeline over which the investor contributes equity capital to the project (Correct answer)
- The repayment schedule for the construction loan
- The schedule of tax credit delivery to the investor
- The timeline for tenant income recertifications
Correct answer: The timeline over which the investor contributes equity capital to the project
The pay-in schedule specifies when the investor delivers equity installments, typically tied to construction milestones and credit delivery events.
Question 4: A LIHTC project has 50 units restricted to 60% AMI and 10 market-rate units. Which minimum set-aside test does this project satisfy?
- 20-50 test (20% of units at 50% AMI) — No; but satisfies 40-60 test
- 40-60 test only (Correct answer)
- Both the 20-50 and 40-60 tests
- Neither test is satisfied
Correct answer: 40-60 test only
With 83% of units at 60% AMI, the project satisfies the 40-60 test (at least 40% of units at 60% AMI) but not necessarily the 20-50 test.
Question 5: In LIHTC transactions, what does the term 'yield' refer to in the investor's underwriting?
- The after-tax rate of return the investor expects on their equity investment (Correct answer)
- The annual rent yield on restricted units
- The percentage of tax credits claimed each year
- The interest rate on the construction loan
Correct answer: The after-tax rate of return the investor expects on their equity investment
Investor yield is the internal rate of return (IRR) on their equity, driven by tax credits, losses, and any cash distributions.
Question 6: TCAC's 'Operating Cost Minimums' regulation sets floor levels for which financial category?
- Annual operating expenses per unit (Correct answer)
- Minimum debt service coverage ratio
- Maximum developer fee as a percentage of costs
- Minimum replacement reserve contribution
Correct answer: Annual operating expenses per unit
TCAC sets minimum per-unit operating cost floors to ensure projects are underwritten with realistic expense projections and long-term viability.
Question 7: What is the significance of IRS Form 8609 in the LIHTC program?
- It is the Low-Income Housing Credit Allocation Certification that authorizes the investor to claim credits (Correct answer)
- It reports annual tenant income to the IRS
- It certifies project compliance to the state agency
- It documents the final cost certification audit
Correct answer: It is the Low-Income Housing Credit Allocation Certification that authorizes the investor to claim credits
Form 8609 is issued by the allocating agency and must be filed by the investor to claim the annual housing tax credit.
LIHTC Financial Management & Tax Credit Allocation 3
A LIHTC investor receives tax credits over how many years after the project is placed in service?