LIHTC Overview of California Low-Income Housing Tax Credit Program 4 â Questions and Answers
Question 1: Which of the following best describes the '4% federal LIHTC' credit?
- A competitive credit for new construction only
- A noncompetitive credit typically paired with tax-exempt bond financing (Correct answer)
- A credit reserved exclusively for rural California projects
- A refundable credit paid directly by the IRS to developers
Correct answer: A noncompetitive credit typically paired with tax-exempt bond financing
The 4% credit is a noncompetitive, as-of-right credit available when at least 50% of a project's aggregate basis is financed with tax-exempt bonds.
Question 2: Under the LIHTC program, what is the 'credit period' for a qualified low-income building?
- 5 years
- 10 years (Correct answer)
- 15 years
- 30 years
Correct answer: 10 years
The credit period is 10 years, during which owners claim the annual tax credit on their federal tax returns.
Question 3: California's state LIHTC differs from the federal LIHTC in that California state credits are:
- Claimed over 20 years instead of 10 years
- Allocated as a single-year credit rather than a 10-year stream (Correct answer)
- Only available to nonprofit developers
- Not subject to CTCAC oversight
Correct answer: Allocated as a single-year credit rather than a 10-year stream
California state credits are awarded as a lump-sum (dollar-for-dollar) credit claimed in a single year, unlike the federal credit spread over 10 years.
Question 4: What is the 'eligible basis' in the LIHTC calculation?
- The total appraised value of the land and improvements
- The depreciable cost of the building eligible for the tax credit calculation (Correct answer)
- The annual rent collected from low-income tenants
- The investor equity contributed to the project
Correct answer: The depreciable cost of the building eligible for the tax credit calculation
Eligible basis is the depreciable cost of the residential rental propertyâexcluding landâthat forms the starting point for computing the LIHTC.
Question 5: Under California's LIHTC program, a project located in a Difficult Development Area (DDA) or Qualified Census Tract (QCT) may be eligible for a boost to its eligible basis of up to:
- 110%
- 120%
- 130% (Correct answer)
- 150%
Correct answer: 130%
Projects in DDAs or QCTs can receive a 130% basis boost under IRC Section 42(d)(5)(B), increasing the amount of credits available.
Question 6: What is the role of a 'limited partner' in a typical California LIHTC transaction?
- Managing day-to-day operations of the apartment complex
- Providing equity capital in exchange for the tax credit and other tax benefits (Correct answer)
- Serving as the general contractor for construction
- Acting as the compliance monitor for CTCAC
Correct answer: Providing equity capital in exchange for the tax credit and other tax benefits
Tax credit investors become limited partners in the ownership entity, contributing equity in exchange for the credits and depreciation deductions.
Question 7: Under CTCAC regulations, what is the minimum period a LIHTC project in California must maintain affordability in total (including the initial compliance period and extended use period)?
- 30 years
- 40 years
- 55 years (Correct answer)
- 99 years
Correct answer: 55 years
California requires a 55-year affordability covenant: a 15-year initial compliance period plus a 40-year extended use agreement.
LIHTC Overview of California Low-Income Housing Tax Credit Program 4
Which of the following best describes the '4% federal LIHTC' credit?