LIHTC Overview of California Low-Income Housing Tax Credit Program 3 — Questions and Answers
Question 1: California's state LIHTC program provides credits that are used in conjunction with federal credits. What is the primary benefit of combining state and federal LIHTCs?
- It eliminates the need for any debt financing
- It increases total equity raised, enabling deeper affordability or more units (Correct answer)
- It exempts developers from CEQA review
- It removes the 55-year extended use requirement
Correct answer: It increases total equity raised, enabling deeper affordability or more units
Layering state and federal credits raises more equity from investors, allowing developers to serve lower incomes, reduce debt, or increase unit counts.
Question 2: Under California's LIHTC income averaging option, what is the average AMI limit that the project's units must collectively meet?
- 40% AMI
- 50% AMI
- 60% AMI (Correct answer)
- 80% AMI
Correct answer: 60% AMI
Income averaging requires that the average AMI of designated units does not exceed 60%, with individual units ranging from 20% to 80% AMI.
Question 3: What is the primary purpose of the CTCAC's Opportunity Map used in California's LIHTC program?
- To rank tax credit investors by creditworthiness
- To identify high-opportunity areas that receive location-based scoring incentives (Correct answer)
- To map out approved construction contractors
- To track existing LIHTC properties for compliance
Correct answer: To identify high-opportunity areas that receive location-based scoring incentives
The Opportunity Map designates areas by resource level (high, moderate, low) to guide LIHTC awards toward high-opportunity neighborhoods.
Question 4: When a LIHTC project is placed in service, what document does the developer file with CTCAC to claim the credit?
- IRS Form 8609 (Correct answer)
- IRS Form 1120-S
- CTCAC Regulatory Agreement
- HUD Form 935.2
Correct answer: IRS Form 8609
IRS Form 8609 (Low-Income Housing Credit Allocation and Certification) is issued by CTCAC and filed by the developer to claim the tax credit.
Question 5: Under federal LIHTC rules, what happens to credits if a building's qualified basis decreases during the compliance period?
- Credits previously claimed are permanently forgiven
- A portion of credits previously claimed must be recaptured with interest (Correct answer)
- The state replaces lost federal credits with state credits
- The project is automatically converted to market-rate housing
Correct answer: A portion of credits previously claimed must be recaptured with interest
A decrease in qualified basis triggers recapture of a portion of prior-year credits plus interest under IRC Section 42(j).
Question 6: California's CTCAC uses 'threshold requirements' in its QAP primarily to:
- Set maximum developer fees
- Ensure only financially feasible, market-ready projects compete for credits (Correct answer)
- Limit the number of units per project
- Require all projects to use union labor
Correct answer: Ensure only financially feasible, market-ready projects compete for credits
Threshold requirements screen out infeasible or incomplete applications so that only viable projects advance to competitive scoring.
Question 7: For a LIHTC project in California, which entity typically purchases the tax credits from the developer?
- The State of California General Fund
- Corporate investors seeking to offset federal tax liability (Correct answer)
- HUD as part of Section 8 subsidies
- Local city governments through bond proceeds
Correct answer: Corporate investors seeking to offset federal tax liability
Corporate investors—often banks or insurance companies—buy LIHTC credits to reduce their federal income tax liability, providing equity to the developer.
LIHTC Overview of California Low-Income Housing Tax Credit Program 3
California's state LIHTC program provides credits that are used in conjunction with federal credits.
What is the primary benefit of combining state and federal LIHTCs?