LIHTC Overview of California Low-Income Housing Tax Credit Program 5 — Questions and Answers
Question 1: Which federal law created the Low-Income Housing Tax Credit program?
- The Housing and Community Development Act of 1974
- The Tax Reform Act of 1986 (Correct answer)
- The Cranston-Gonzalez National Affordable Housing Act of 1990
- The American Recovery and Reinvestment Act of 2009
Correct answer: The Tax Reform Act of 1986
The LIHTC program was created by the Tax Reform Act of 1986 and is codified under IRC Section 42.
Question 2: A California LIHTC project must submit annual compliance reports to CTCAC that include which of the following?
- Proof of tenant insurance for each unit
- Tenant income certifications and unit vacancy data (Correct answer)
- Investor tax returns for the partnership
- Federal IRS audit clearance letters
Correct answer: Tenant income certifications and unit vacancy data
Owners must annually certify tenant incomes and report unit occupancy to demonstrate ongoing compliance with set-aside requirements.
Question 3: In a California LIHTC partnership, the 'general partner' typically:
- Provides the majority of the equity but has no management role
- Manages the project and bears unlimited liability for partnership obligations (Correct answer)
- Acts only as a lender and receives fixed interest payments
- Holds the tax credits for resale on the secondary market
Correct answer: Manages the project and bears unlimited liability for partnership obligations
The general partner (usually the developer or an affiliated entity) controls operations and carries unlimited liability in the limited partnership structure.
Question 4: Under California LIHTC rules, if a LIHTC unit becomes vacant, the owner must continue treating it as a low-income unit for compliance purposes unless:
- The vacancy lasts more than 30 days
- The owner makes reasonable attempts to rent it and the next available comparable unit is rented to a qualifying tenant (Correct answer)
- The IRS grants a temporary vacancy waiver
- The unit is undergoing federally approved renovation
Correct answer: The owner makes reasonable attempts to rent it and the next available comparable unit is rented to a qualifying tenant
The Vacant Unit Rule allows a temporarily vacant unit to remain in compliance if the owner actively markets it and rents the next comparable unit to a qualifying household.
Question 5: What does CTCAC consider when scoring a LIHTC application under the 'leveraging' criterion?
- The ratio of local government jobs created by the project
- The amount of non-LIHTC funding sources contributing to total project cost (Correct answer)
- The developer's personal net worth relative to project size
- The percentage of units with in-unit washer/dryer connections
Correct answer: The amount of non-LIHTC funding sources contributing to total project cost
Leveraging scoring rewards applications that bring in significant outside funding—such as HOME funds, AHP grants, or local subsidies—reducing reliance on LIHTC equity alone.
Question 6: Which California LIHTC set-aside is specifically designated to support projects developed or managed by nonprofit organizations?
- Rural set-aside
- Nonprofit set-aside (Correct answer)
- Special needs set-aside
- TOD (transit-oriented development) set-aside
Correct answer: Nonprofit set-aside
Federal law requires that at least 10% of each state's LIHTC ceiling be set aside for projects in which a qualified nonprofit materially participates.
Question 7: Under California's LIHTC program, 'rent restrictions' for qualified low-income units are based on:
- The actual income of the household residing in the unit
- The imputed income limitation applicable to the unit, regardless of actual tenant income (Correct answer)
- The local fair market rent published by HUD
- The developer's pro forma underwriting assumptions
Correct answer: The imputed income limitation applicable to the unit, regardless of actual tenant income
LIHTC rents are capped based on the designated income limit for the unit (e.g., 50% or 60% AMI), not the actual income of the tenant living there.
LIHTC Overview of California Low-Income Housing Tax Credit Program 5
Which federal law created the Low-Income Housing Tax Credit program?