LOW-INCOME 

HOUSING TAX 

CREDITS

Agencies Implemented 

Changes Enacted in 

2008, but Project Data 

Collection Could Be 

Improved

Report to Congressional Committees

December 2012

GAO-13-66

United States Government Accountability Office

GAO
United States Government Accountability Office

Highlights of GAO-13-66, a report to 

congressional committees

December 2012

LOW-INCOME HOUSING TAX CREDITS

Agencies Implemented Changes Enacted in 2008, but Project Data 

Collection Could Be Improved

Why GAO Did This Study

IRS and state HFAs administer the 

LIHTC program, the largest source of 

federal assistance for developing 

affordable rental housing. HFAs are 

allocated tax credits on a per capita 

basis and award them to developers. 

By acquiring project equity from 

developers, investors may become 

eligible for the credits, which offset 

federal tax liabilities. As part of HERA, 

Congress made changes to the 

program that included increasing 

credits allocated to states, setting a 

temporary floor on the most common 

LIHTC rate (the portion of eligible 

project costs for which a developer can 

receive credits), and giving HFAs more 

discretion in “enhancing” (i.e., 

increasing) awards. HERA also 

required GAO to study the changes, 

including the distribution of credit 

allocations before and after HERA. 

This report discusses (1) how IRS and 

selected HFAs implemented the HERA 

changes, (2) what HUD’s data show 

about the number and characteristics 

of projects completed from 2006 

through 2010 and any data limitations, 

and (3) stakeholders’ views on the 

effects of the HERA changes on LIHTC 

projects. GAO reviewed IRS and state 

guidelines, analyzed HUD data on

LIHTC projects, and spoke with 

federal, state, and industry officials.

What GAO Recommends

GAO recommends that HUD evaluate 

and implement additional steps to 

improve its LIHTC Database. HUD 

agreed with the recommendation but 

said the report could better describe 

the agency’s efforts to improve data 

collection despite resource constraints. 

In response, GAO added further 

information on HUD’s changes to its 

collection process.

What GAO Found

Federal and state agencies implemented changes made in 2008 to the LowIncome Housing Tax Credit (LIHTC) program by revising program guidance and 

modifying plans for allocating tax credits. The Internal Revenue Service (IRS)

implemented the changes made by the Housing and Economic Recovery Act of 

2008 (HERA) by, among other things, issuing notices and revenue procedures. 

Program stakeholders that GAO contacted said that IRS’s actions were generally 

sufficient. But as of October 2012, IRS and the Department of the Treasury were

still working on implementation issues, such as developing guidance on the 

provision designed to ease restrictions on using tax credits to acquire existing 

federally or state-assisted buildings. At the state level, housing finance agencies 

(HFA) implemented the HERA changes by modifying their tax credit allocation 

plans, which provide criteria for awarding credits. For example, in their plans, 

some HFAs cited financial need as the only criterion for awarding HERA-created 

enhanced credits. Others planned to target specific types of projects, such as 

those using “green building” practices. 

The Department of Housing and Urban Development (HUD) voluntarily compiles 

the largest public database on LIHTC projects, but the data it collects from HFAs

are incomplete. Despite HUD efforts to improve its data collection process, the 

database may undercount projects, in part because HUD did not follow up on 

potentially incomplete information. For example, HUD’s database showed that 

one state had between 23 and 49 completed projects each year from 2006 

through 2009, but only 2 projects in 2010. However, officials from this state’s 

HFA provided GAO with documentation showing that they had reported 37 

projects for 2010. Further, much of the project data that HUD has received does

not include characteristics such as the type of location, construction, and tenants 

targeted. A HUD official noted that a HERA provision requiring states to collect

tenant-level data (e.g., race and income) had made collecting project data more 

challenging because HUD did not receive additional resources and available 

resources had to be divided between tenant and project data collection. Without 

more complete data on the LIHTC program, the federal government’s ability to 

evaluate basic program outcomes—such as how much housing was produced—

and overall federal efforts to provide affordable housing may suffer. Data from 42 

HFAs that reported each year from 2006 through 2010 provide limited insight into 

the actual number and characteristics of LIHTC projects. The number of reported 

projects completed exceeded 5,300, and most were in metropolitan areas and 

were new construction. However, missing data prevented analysis of trends over 

the 5-year period. For example, the proportion of missing information on the 

types of tenants targeted increased from 5 percent in 2006 to 28 percent in 2010.

Program stakeholders told GAO that the broad effects of the HERA provisions on 

the LIHTC market were difficult to determine but noted that certain provisions

enhanced the financial feasibility of some individual projects. For example, 

stakeholders said the temporary increase in per capita credit allocations, 

temporary credit rate floor, and discretion to use enhanced credits improved the 

financial viability of some projects by allowing states to award more credits per

project. Some state officials also said that the larger awards especially benefited

projects in rural areas that can be difficult to finance because they tend to have

lower rents and are less attractive to investors than projects in urban areas. 

View GAO-13-66. For more information, 

contact Daniel Garcia-Diaz at (202) 512-8678

or garciadiazd@gao.gov or James R. White at 

(202) 512-9110 or whitej@gao.gov. 
Page i GAO-13-66 LIHTC Program Changes

Letter 1 

Background 4

IRS Revised Guidance and States Modified Qualified Allocation 

Plans to Implement the HERA Changes 12

Available LIHTC Data Are Incomplete and Provide Limited Insight 

into Program Trends 17

Stakeholders Said HERA Provisions Helped the Financial 

Feasibility of Some LIHTC Projects 24

Conclusions 28

Recommendation for Executive Action 29

Agency Comments and Our Evaluation 29

Appendix I Objectives, Scope, and Methodology 32

Appendix II Specific 2008 Changes Related to the Low-Income Housing Tax Credit 35

Appendix III Comments from the Department of Housing and Urban Development 37

Appendix IV GAO Contacts and Staff Acknowledgments 40

Tables

Table 1: Example of LIHTC Calculation 8

Table 2: HERA Changes Discussed in This Report 9

Table 3: Percentage of Projects with Missing Information by 

Project Characteristics, Calendar Years 2006-2010, as of 

July 2012 20

Table 4: Reported Number of LIHTC Projects Placed in Service, 

Calendar Years 2006-2010, as of July 2012 22

Table 5: Percentage of Reported LIHTC Projects Placed in Service 

from Calendar Years 2006-2010 by Location Type, as of 

July 2012 23

Table 6: Percentage of Reported LIHTC Projects by Construction 

Type, Calendar Years 2006-2010, as of July 2012 23

Table 7: Percentage of Reported LIHTC Projects by Type of Tenant 

Targeted, 2006-2010, as of July 2012 24

Contents 
Page ii GAO-13-66 LIHTC Program Changes

Table 8: Per Capita LIHTC Allocations, Calendar Years 2006-2010, 

Including HERA Increases in 2008 and 2009 25

Table 9: Amount of Credits Developers Returned to HFAs, 

Calendar Years 2006-2010 26

Table 10: Specific LIHTC Provisions Enacted in 2008, by Category 35

Figures

Figure 1: Key Steps and Entities in the LIHTC Process 5

Figure 2: Timeline of Key Events Affecting LIHTC Market, 2007 

through 2009 11

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Page iii GAO-13-66 LIHTC Program Changes

Abbreviations

DDA difficult development area

HERA Housing and Economic Recovery Act of 2008

HFA housing finance agency

HUD Department of Housing and Urban Development

IRS Internal Revenue Service

LIHTC Low-Income Housing Tax Credit

NCSHA National Council of State Housing Agencies

QAP qualified allocation plan

QCT qualified census tract

TCAP Tax Credit Assistance Program
Page 1 GAO-13-66 LIHTC Program Changes

United States Government Accountability Office

Washington, DC 20548

December 6, 2012

The Honorable Max Baucus

Chairman

The Honorable Orrin G. Hatch

Ranking Member 

Committee on Finance

United States Senate

The Honorable Dave Camp 

Chairman 

The Honorable Sander Levin

Ranking Member

Committee on Ways and Means

House of Representatives

The Low-Income Housing Tax Credit (LIHTC) program is the largest 

federal program for building and rehabilitating rental housing that is 

affordable to low-income households. It is estimated to cost $6.5 billion in 

fiscal year 2012 in forgone revenue. The program is jointly administered 

by the Internal Revenue Service (IRS) and state housing finance 

agencies (HFA).1 Each state receives an annual allocation of LIHTCs by 

statutory formula according to population.2 HFAs then competitively 

award the tax credits to owners of qualified rental housing projects that 

reserve all or a portion of their units for low-income tenants. Developers 

typically attempt to obtain funding for their projects by attracting thirdparty investors that are willing to contribute equity to the projects, and the 

project investors can then claim the LIHTCs. This process of providing 

LIHTCs in exchange for equity is generally referred to as “selling” the tax 

credits.3

 

1

All 50 states, the District of Columbia, Puerto Rico, and four U.S. possessions (American 

Samoa, Guam, the Northern Mariana Islands, and the U.S. Virgin Islands) have HFAs that 

receive LIHTC allocations. HFAs are state-chartered authorities established to meet the 

affordable housing needs of the residents of their states. 

The developers or investors can claim their share of credit each 

year during the 10-year credit period, which can be used to reduce their 

2

26 U.S.C. § 42(h)(3).

3

The owners of the LIHTC project are permitted to claim the LIHTCs on their income tax 

return. Technically, what is sold to the investor is not the credit but an ownership interest 

in the project (through a partnership or other entity).

 
 

Page 2 GAO-13-66 LIHTC Program Changes

tax liability. Individual HFAs maintain data on the number of projects that 

receive tax credit allocations each year, as well as the characteristics of 

these projects. The Department of Housing and Urban Development 

(HUD) has almost no direct administrative responsibility for the LITHC 

program, but it voluntarily collects information from the HFAs on LIHTC 

projects for its LIHTC Database, which is the most comprehensive public 

source of information on LIHTC projects. 

Since its inception in 1986, the program has helped to build or rehabilitate 

more than 36,000 projects that help provide housing for low-income 

households.4 In 2008 and 2009—in the midst of the financial crisis—the 

program was severely disrupted when investor demand for tax credits 

collapsed and developers could not obtain funding for projects that would 

have qualified for the credit. The onset of financial struggles for large 

banks and the exit of two large LIHTC investors from the LIHTC market—

Fannie Mae and Freddie Mac—contributed greatly to decreased investor 

demand.5 During that period, Congress took a number of actions to 

improve the operation of the LIHTC program, including changes enacted 

as part of the Housing and Economic Recovery Act of 2008 (HERA).6

 

4

Although the LIHTC program is a major source of financing for affordable rental housing, 

some researchers have argued that the program may displace other affordable housing 

that would have been available through the private, unsubsidized housing market. A 2008 

report by the Congressional Research Service reviewed the research literature on this and 

other issues concerning the impact of the LIHTC program. Congressional Research 

Service, The Low-Income Housing Tax Credit: A Framework for Evaluation, RL33904 

(Washington, D.C.: Apr. 15, 2008). 

These changes generally went into effect after July 30, 2008, including 

5

Fannie Mae and Freddie Mac are private, federally chartered companies created by 

Congress to, among other things, provide liquidity to home mortgage markets by 

purchasing mortgage loans, thus enabling lenders to make additional loans. In September 

2008, Fannie Mae and Freddie Mac were placed into federal government conservatorship. 

6

Pub. L. No. 110-289, 122 Stat. 2654 (July 30, 2008). Under the American Recovery and 

Reinvestment Act of 2009 (Pub. L. No. 111-5), Congress also created two new programs 

that addressed the lack of private investment in projects that would otherwise have used 

LIHTCs. The two programs are the Tax Credit Assistance Program and the Grants to 

States for Low-Income Housing Projects in Lieu of Low-Income Housing Credits Program. 

HFAs were to use the funding from these programs to provide gap financing for stalled 

“shovel-ready” projects and to offset the drop in the demand for, and subsequently the 

price of, LIHTCs. For information on the implementation of these programs, see GAO, 

Recovery Act: Opportunities to Improve Management and Strengthen Accountability over 

States’ and Localities’ Uses of Funds, GAO-10-999 (Washington, D.C.: Sept. 20, 2010)

and Recovery Act: Housing Programs Met Spending Milestones, but Asset Management 

Information Needs Evaluation, GAO-12-634 (Washington, D.C.: June 18, 2012).
 

Page 3 GAO-13-66 LIHTC Program Changes

specific changes for projects placed in service—that is, suitable for 

occupancy—after July 30, 2008.7

HERA also required us to study and report on the implementation of the 

changes, including analyzing the distribution of credit allocations before 

and after the changes went into effect.

 

8

To assess how IRS and HFAs implemented the HERA provisions, we 

reviewed IRS guidance, memorandums, and planning documents, as well 

as state qualified allocation plans (QAP), which contain detailed selection 

criteria and application requirements for the LIHTC program. We also 

interviewed officials from IRS, the Department of the Treasury (Treasury), 

and nine HFAs about the implementation of these changes.

This report discusses (1) how IRS 

and selected HFAs implemented the HERA changes to the LIHTC 

program, (2) what HUD’s data on LIHTC projects show about the number 

and characteristics of projects completed from 2006 through 2010 and 

any data limitations, and (3) the views of program stakeholders about the 

effects of the HERA changes on these projects.

9 We selected 

the 9 HFAs (out of the 56 that receive LIHTC allocations) to cover 

different geographic regions and allocation amounts, but their 

experiences are not representative of all states. To describe HUD’s 

LIHTC data and what these data show about the number and 

characteristics of LIHTC projects, we analyzed information contained in 

HUD’s LIHTC Database, which was last updated in July 2012.10

 

7

IRS Notice 88-116 defines the placed-in-service date as the date on which the first unit in 

the building is certified as being suitable for occupancy under state or local law. 

We 

conducted reasonableness checks on the data to identify any missing, 

erroneous, or outlying figures. We also interviewed HUD about how it and 

its contractor compile the data. These steps revealed that the data were 

not complete, which limited what we could conclude from our data 

analysis. Using the HUD data that were available, we examined the types 

8

HERA at § 3004. The program changes within the scope of our review are contained in 

HERA, div. C, title I, subtitle A, 122 Stat. 2878-2888 (July 30, 2008).

9

We interviewed HFA officials from California, Florida, Massachusetts, Michigan, 

Minnesota, North Carolina, Oregon, Texas, and Vermont. 

10The LIHTC data that IRS maintains are oriented toward enforcing the tax code rather 

than measuring program outcomes. Although not an administering agency, HUD has 

historically collected information on projects produced under the program due to the 

importance of LIHTCs as a source of funding for low-income housing. The most recent 

data available from the database are for properties placed in service in 2010. 
 

Page 4 GAO-13-66 LIHTC Program Changes

and locations of projects that states supported with their tax credit 

allocations, including the proportions of projects that were in rural versus 

urban areas, that were newly constructed versus acquired, and that were 

targeted to specific kinds of tenants. In addition, we used the National 

Council of State Housing Agencies’ (NCSHA) annual HFA Factbooks 

from 2006 through 2010 to analyze the extent to which developers 

returned credits that had not been exchanged for equity to the states. We 

assessed the reliability of the HUD and NCSHA data and concluded that 

these data were sufficiently reliable for our reporting objective. To obtain 

the views of selected HFAs and industry participants about the effect of 

the HERA changes on LIHTC projects, we interviewed the same nine 

HFAs, as well as industry associations, investors, syndicators, and 

housing developers. We also reviewed supporting documentation from 

these entities about their views. Appendix I contains additional details 

about our scope and methodology.

We conducted this performance audit from February through December 

2012 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.

LIHTCs follow a multistep process that begins with the allocation of tax 

credits to HFAs. The process of allocating, awarding, and using LIHTCs is 

depicted in figure 1.

Background 

Description of the LIHTC 

Program
 

Page 5 GAO-13-66 LIHTC Program Changes

Figure 1: Key Steps and Entities in the LIHTC Process 

Note: For a more complete description and an additional graphic on the LIHTC oversight and 

compliance system, see GAO, Opportunities to Improve Oversight of the Low-Income Housing 

Program, GAO/GGD/RCED-97-55 (Washington, D.C.: Mar. 27, 1997).

As the figure shows, there are four primary steps in the LIHTC process. 

1. HFAs receive tax credit allocations. State ceilings for LIHTCs are 

allocated by statutory formula to states annually according to 
 

Page 6 GAO-13-66 LIHTC Program Changes

population, with a minimum amount awarded to states with small 

populations.11 For 2012, the formula was $2.20 per capita or a 

minimum of $2,525,000.12

2. Developers apply to the states for tax credits. To apply for tax credits, 

a developer must submit a detailed proposal to an HFA. To qualify for 

consideration, a project must meet certain requirements, such as 

reserving specified percentages of available units for lower income 

households and restricting rents for these households to 30 percent of 

a calculated income limit. 

 

3. HFAs award tax credits to selected housing projects. The potential to 

earn tax credits is competitively awarded to housing projects in 

accordance with states’ QAPs. QAPs outline a state’s affordable 

housing priorities and set out its procedure for ranking the projects on 

the basis of how well they meet state priorities and selection criteria 

that are appropriate to local conditions. The QAP must give 

preference to projects that serve the tenants with the lowest incomes, 

serve qualifying tenants for the longest period of time, and are located 

in a qualified census tract (QCT) and contribute to a local community 

revitalization plan.13

4. Investors receive tax benefits. Investment partnerships are a primary 

source of equity financing for LIHTC projects. Syndicators recruit 

investors willing to become partners in LIHTC partnerships. The 

money investors pay for the partnership interest is paid into the LIHTC 

project as equity financing. Although investors are buying an interest 

in a rental housing partnership, this process is commonly referred to 

as buying tax credits because they receive tax credits in return for 

their investment. Once the LIHTC project is placed in service, or ready 

Developers receiving tax credit allocations have 2 

years to complete their projects and may not claim the credits until the 

projects are placed in service.

 

1126 U.S.C. § 42(h)(3). 

12The state ceiling applies to (1) the 9 percent credit for nonfederally subsidized new 

buildings and substantially rehabilitated buildings treated as new buildings, and (2) the 4 

percent credit for acquired buildings. The state credit ceiling does not include the 4 

percent credit available to housing projects financed with tax-exempt bonds, which are 

associated with private activity bonds.

13Under 26 U.S.C. § 42(d)(5)(B)(ii)(l), QCTs are designated by the Secretary of Housing 

and Urban Development and include census tracts where either 50 percent or more of 

households have income below 60 percent of the area median gross income or the 

poverty rate is at least 25 percent.
 

Page 7 GAO-13-66 LIHTC Program Changes

for occupancy, investors can receive their share of the credits each 

year of the 10-year credit period and can use the credit to offset 

federal income taxes otherwise owed on their tax returns, as long as 

the project meets the LIHTC requirements. 

The amount of tax credits a project can receive depends on several 

factors, including the applicable fraction and the applicable percentage 

(see table 1). The applicable fraction, or the percentage of units in the 

building considered to be qualified low-income units, is the lesser of (1) 

the total square feet of the low-income units divided by the total square 

feet of all the units, or (2) the number of the low-income units divided by 

the total number of units. Regarding the applicable percentage, there are 

two credit rates (referred to as the 9 percent and 4 percent rates) for the 

LIHTC program that determine how much of a project’s costs the 

allocated credits can cover. The credit rate takes into account whether the 

project is newly constructed or acquired and rehabilitated and the extent 

to which it uses other federal subsidies.14 Most new construction and 

substantial rehabilitation projects are eligible for the 9 percent rate, which 

allows investors to claim credits for about 9 percent of the eligible basis 

annually over a 10-year period.15 Prior to HERA, the actual percentage for 

the 9 percent credit floated based on a statutory formula and often fell 

below 9 percent. 

 

14The 9 percent credit is also known as the 70 percent present value credit. 26 U.S.C. § 

42(b). This latter terminology reflects the fact that the 9 percent credit is designed to yield 

a total amount over the 10-year credit period that is worth 70 percent of the present value 

of the stream of tax credits. The 9 percent rate refers to the approximate value that can be 

claimed by investors each year. 

15Investors use the 4 percent credit for acquisition of existing buildings and new 

construction projects that are financed in conjunction with tax-exempt bonds and other 

gap subsidies. The 4 percent credit floats based on a statutory formula.
 

Page 8 GAO-13-66 LIHTC Program Changes

Table 1: Example of LIHTC Calculation

1. Total project development cost $11,500,000 

2. Ineligible costs 

(e.g., land acquisition, cash reserves, syndication costs, certain financing costs) 

(1,500,000) 

3. Eligible basis (row 1 - row 2) 

(Construction costs, architects’ fees, environmental surveys, relocation expenses, title and recording fees, 

appraisals) 

$10,000,000 

4. Applicable fraction

(In this example, all units in the project are low-income units)

100%

5. Qualified basis (row 3 x row 4) $10,000,000

6. Applicable percentage 9% 

7. Annual credit amount taken over 10 years (row 4 x row 5) $900,000 

8. Credits over 10 years $9,000,000 

Source: GAO analysis. 

The amount of equity an investor is willing to contribute to the 

construction of the project in exchange for credits results in the effective 

price of an ownership interest in the project. In the above example, if the 

investor made $6,750,000 in total equity contributions, the implied price of 

the credits would be $0.75 for each dollar of credit 

($6,750,000/$9,000,000).16

HERA made more than 20 changes to the LIHTC program that generally 

became effective after July 30, 2008.

 

17 Table 2 provides brief descriptions 

of the changes discussed in this report. Appendix II lists all of the 

changes to the LIHTC program made by the Multi-Family Housing subtitle 

of HERA.

 

16For additional information on the calculation of the price of LIHTC credits, see GAO, 

Community Reinvestment Act: Challenges in Quantifying Its Effect on Low-Income 

Housing Tax Credit Investment, GAO-12-869R (Washington, D.C.: Aug. 28, 2012). 

17HERA, div. C, title I, subtitle A, 122 Stat. 2878-2888 (July 30, 2008).

HERA Changes to the 

LIHTC Program
 

Page 9 GAO-13-66 LIHTC Program Changes

Table 2: HERA Changes Discussed in This Report

HERA change Description 

1. Temporarily increased per capita 

credit allocations to states

Before HERA, the amount of credits a state received was based on a formula that 

adjusted the 2003 per capita rate of $1.75 for inflation. In 2003, states with small 

populations received at least $2,030,000 in allocations, also adjusted for inflation each 

subsequent year. HERA increased the per capita allocation by 10 percent for 2008—from 

$2.00 to $2.20—which resulted in a per capita allocation of $2.30 in 2009 after adjusting 

for inflation. The allocation for states with small populations was increased to $2,555,000 

in 2008 ($2,665,000 in 2009, adjusted for inflation). After 2009, the per capita allocations 

reverted to the amounts that would have been specified by the inflation calculations 

($2.10 and $2,430,000 in 2010).

2. Established a 9 percent minimum 

credit rate

Before HERA, the actual percentages for the 9 percent credit floated based on a statutory 

formula and often fell below 9 percent. HERA set a floor of 9 percent for this credit, 

effective for buildings placed in service after July 30, 2008 and before December 31, 

2013. Without this provision, the rate would have been 7.94 percent for August 2008.

3. Gave states flexibility to pick buildings 

eligible for a “basis boost”

HERA gave HFAs the ability to designate any building, regardless of location, as eligible 

for an enhanced credit of up to 130 percent of the building’s eligible basis (rather than the 

normal 100 percent), in effect treating these projects as if they were in a difficult 

development area or a qualified census tract.a HERA required HFAs to find that the basis 

boost was necessary for a building to be financially feasible as part of a qualified project 

before granting it to a developer.

4. Redefined when a building is 

considered federally subsidized

Before HERA, if any part of a building’s eligible basis was federally subsidized, the 

building was ineligible for the 9 percent credit. HERA limited the definition of a federal 

subsidy for these purposes to tax-exempt bonds, thus possibly making more buildings 

eligible for the 9 percent credit.

5. Eased restrictions on using LIHTCs to 

acquire an existing building

Before HERA, in general, the acquisition costs for an existing building would not be 

eligible for the credit unless there was a period of at least 10 years between the date it 

was acquired by the taxpayer and the date the building was last placed in service. HERA 

waived the 10-year rule for any federally or state-assisted building. A federally assisted 

building is a building “substantially” assisted, financed, or operated under specific 

sections of various housing acts or under any other housing program administered by 

HUD or by the Department of Agriculture’s Rural Housing Service. A state-assisted 

building is a building “substantially” assisted, financed, or operated under any state law 

with purposes similar to one of the acts just mentioned.

6. Repealed the bond posting 

requirement

Before HERA, a taxpayer could avoid credit recapture when disposing of a building by 

posting a disposition bond with IRS. The purpose of the bond was to ensure the 

recapture amount could be assessed and collected if a recapture event occurred after the 

disposition. HERA replaced this option by extending a statute of limitations for assessing 

the recapture amount to 3 years from the date the taxpayer notifies Treasury (IRS) that 

noncompliance with federal LIHTC requirements has occurred, if it is reasonably 

expected that such building will continue to be a qualified low-income building for the 

remainder of the compliance period.b Although generally applicable to dispositions of a 

building after HERA’s enactment date, at the election of the taxpayer, the provision also 

applies to dispositions on or before that date if the taxpayer had placed a disposition 

bond with IRS in a timely fashion.
 

Page 10 GAO-13-66 LIHTC Program Changes

HERA change Description 

7. Changed median income rules in rural 

areas

Before HERA, tenant income limits were based on the relevant area’s median gross 

income. HERA changed the measurement of area median gross income applied to 

certain properties in certain rural areas so that the income limits for these properties 

would be measured by the greater of the otherwise applicable area median gross income 

or the national nonmetropolitan median gross income.

8. Changed the general public use 

requirement

To be eligible for LIHTCs, residential units in qualified projects must be available for 

general public use. HERA clarified that a project would not fail this requirement just 

because it favored tenants who had special needs, were members of specified groups, or 

were involved in artistic or literary activities.

9. Instituted hold harmless provisions for 

reductions in area median gross 

income

Before HERA, HUD used a “hold harmless” policy to keep the area median gross income 

it used to determine eligibility for HUD’s main rental assistance program from falling. 

HERA put the HUD practice into the Internal Revenue Code to bolster the financial 

viability of LIHTC projects by preventing rents from automatically falling when the area 

median gross income level on which rents are based declined. It did this by adding hold 

harmless provisions to address areas where the area median gross income had 

decreased. HERA prevented future decreases in tenant income limits and rents resulting 

from declines in area median gross income. 

Sources: GAO analysis of HERA changes; Joint Committee on Taxation, General Explanation of Tax Legislation Enacted in the 110th

Congress, JCS-1-09 (March 2009); Michael J. Novogradac and Glenn A. Graff, “Impact of the Housing and Economic Recovery Act of 

2008 on Current and Future Low-Income Housing Tax Credit Properties,” Journal of Affordable Housing & Community Development 

Law, vol.18, no.1 (fall 2008). 

Note: See appendix II for a list of all changes to the LIHTC program made by the Multi-Family 

Housing subtitle of HERA.

a

A difficult development area is defined as “any area designated by the Secretary of Housing and 

Urban Development as an area which has high construction, land, and utility costs relative to area 

median gross income.” HUD updates the list of such areas annually. 26 U.S.C § 42(d)(5)(B)(iii)(I). 

b

A LIHTC project is subject to a 15-year compliance period during which a taxpayer is subject to IRS 

oversight and an extended use period of at least 30 years during which the project is subject to HFA 

oversight. The 15-year compliance period and the extended use period begin at the same time. 

Noncompliance with federal LIHTC requirements within the 15-year compliance period may result in 

IRS’s denying claims for the credit in the current year or recapturing credits claimed in prior years.

In addition to HERA, several other economic and program developments 

affected the LIHTC program in the 2008 to 2009 time frame (see fig. 2). 

For example, the general economic recession beginning at the end of 

2007 reduced the profitability of banks and other financial institutions that 

were large LIHTC investors. As a result, these investors had no need for 

tax credits because they experienced losses or lower profits and thus had 

lower tax liabilities to offset. With the drop in demand for the credits, the 

effective prices of LIHTCs fell, creating funding gaps for developers who 

had assumed they would be able to sell their tax credits for a higher price. 

Other Economic and 

Program Changes 

Affecting LIHTC
 

Page 11 GAO-13-66 LIHTC Program Changes

According to one report, thousands of projects and tens of thousands of 

units that would have otherwise been bought or rehabilitated stalled.18

Figure 2: Timeline of Key Events Affecting LIHTC Market, 2007 through 2009 

 

To help fill the funding gaps, in February 2009 Congress enacted the 

American Recovery and Reinvestment Act of 2009 (Recovery Act), which 

created the Tax Credit Assistance Program (TCAP) and the Tax Credit 

Exchange Program (Exchange Program). TCAP provided supplemental 

grant and loan funds to projects that received LIHTCs. The Exchange 

Program allowed HFAs the option of exchanging eligible portions of the 

state’s housing credit ceiling for cash grants that could be used to finance 

low-income housing.

 

18Joint Center for Housing Studies of Harvard University, The Disruption of the LowIncome Housing Tax Credit Program: Causes, Consequences, Responses, and Proposed 

Correctives (Cambridge, Mass.: December 2009).
 

Page 12 GAO-13-66 LIHTC Program Changes

Because the LIHTC program is jointly administered by federal and state 

governments, agencies at both levels played roles in implementing 

HERA’s changes to the program. At the federal level, IRS and Treasury’s 

Office of Tax Policy provided new guidance for program stakeholders. At 

the state level, HFAs modified their QAPs for allocating tax credits. 

HERA made changes to the LIHTC program that affected various parties, 

including taxpayers, HFAs, and project owners, and IRS and Treasury 

provided guidance and took other actions into 2012 to implement these 

changes. To better ensure that information on the HERA changes was 

widely accessible, IRS issued revenue procedures and notices, made 

changes to forms and form instructions, and circulated newsletters to 

program stakeholders.19

• Issuing (1) a revenue procedure for taxpayers to follow when 

choosing to no longer maintain a surety bond, as permitted by the 

HERA change described in table 2, item 6;

More specifically, its actions included the 

following: 

20

 

19A revenue procedure is an official statement of a procedure published in the Internal 

Revenue Bulletin that affects, for instance, the rights of a taxpayer under the Internal 

Revenue Code and should be a matter of public knowledge. It provides return filing or 

other instructions concerning an IRS position. A notice is a public pronouncement that 

may contain guidance involving substantive interpretation of the Code or other provisions 

of the law. 

(2) a notice that the 9 

percent floor (table 2, item 2) would apply to eligible projects that had 

committed to a lower rate before HERA; and (3) a newsletter to 

program stakeholders describing new income limits related to the 

HERA “hold harmless” provisions described in table 2, item 9. The 

income limits are a percentage of the relevant area’s median gross 

20A surety bond is a bond guaranteeing the performance of a contract or an obligation.

IRS Revised Guidance 

and States Modified 

Qualified Allocation 

Plans to Implement 

the HERA Changes 

IRS and Treasury Have 

Issued Guidance and Are 

Considering and Acting on 

Implementation Issues
 

Page 13 GAO-13-66 LIHTC Program Changes

income and are the basis for calculating the gross rent that a LIHTC 

project can charge.21

• Updating instructions for Form 8609, “Low-Income Housing Credit 

Allocation and Certification,” to reflect changes involving the 9 percent 

floor (table 2, item 2), federally subsidized buildings (table 2, item 4), 

and the HERA basis boost (table 2, item 3). HFAs use the form to 

report LIHTC allocations for buildings to IRS, and building owners use 

it to certify such things as a building’s eligible basis, qualified basis, 

and placed-in-service date.

• Revising the Guide for Completing Form 8823, Low-Income Housing 

Credit Agencies Report of Noncompliance or Building Disposition, a 

guide intended to help housing agencies identify and consistently 

report noncompliance issues to IRS. 

• Discussing through internal memorandums whether regulations 

needed to be updated because of HERA and exploring 

implementation issues that surfaced. For instance, IRS internally 

considered questions from the division tracking its own 

implementation of HERA’s LIHTC provisions about whether the 

changes required updates to regulations governing general public use 

requirements mentioned in table 2, item 8. An official from IRS’s 

Office of Chief Counsel told us they determined that no updates were 

needed. 

Program stakeholders we spoke with, including HFAs, industry 

associations, syndicators, and developers, generally said that IRS’s 

actions to implement the HERA changes were sufficient, and that they 

were satisfied with the agency’s efforts. However, they raised two 

concerns in our discussions that IRS and Treasury have continued to 

consider and act on. 

The first involved the HERA provision noted in table 2, item 5, that eased 

restrictions on using LIHTCs to acquire an existing building. Before 

 

21For any project, the area median gross income determined for a particular year after 

2008 is held harmless—it cannot be lower than the amount determined the year before.

Also, for projects that had the area median gross income determined for 2007 or 2008, the 

area median gross income for years after 2008 is at least the amount at which HUD had 

held it harmless previously plus the amount by which the area median gross income 

increased after 2008.
 

Page 14 GAO-13-66 LIHTC Program Changes

HERA, acquisition costs for an existing building generally would not be 

eligible for LIHTCs unless the building had been placed in service 10 

years or more before it was acquired. HERA waived this 10-year rule for 

any federally or state-assisted building—that is, any building that was 

“substantially” assisted, financed, or operated under certain federal or 

state programs or laws. 

In response to this HERA provision, the IRS Chief Counsel and Treasury 

placed clarification of the meaning of “substantially” on priority lists of 

guidance projects for July 2010 through June 2011 and July 2011 through 

June 2012. With over 300 guidance projects on the priority list for 2011-

2012, IRS and Treasury had not issued any guidance defining 

“substantially” as of October 2012. Agency officials cited the complexity of 

the issue and other agency priorities as reasons for the delay.22

The relative importance of future guidance is unclear as stakeholders 

disagreed on the need to clarify the meaning of “substantially.” Some 

stakeholders said there was little need for clarification. However, one 

organization sought guidance from Treasury in 2009 and 2010 because, it 

said, the lack of a definition was delaying some acquisition projects.

A 

Treasury official was not yet able to tell us when the agency would 

complete the guidance, what it was likely to say, or whether it would 

resolve the definition of “substantially” for both federal and state subsidies 

at the same time. 

23

A second concern—related to HERA’s hold harmless provisions on 

income and rent limits—did not rise to the level of necessarily requiring 

An 

IRS official agreed, saying the lack of guidance had delayed acquisition 

projects and resulted in the substitutions of other projects, such as 

construction of new buildings, for acquisitions. In addition, a Treasury 

official told us that the lack of guidance had likely made attorneys for 

potential LIHTC projects conservative in interpreting “substantially.” For 

example, some may have decided that all the units in a building must be 

federally subsidized in order to meet the definition. 

 

22In previous reports, we have described delays in the priority guidance process. See 

GAO, Tax Policy: The Research Tax Credit’s Design and Administration Can Be 

Improved, GAO-10-136 (Washington, D.C.: Nov. 6, 2009), and Financial Derivatives: 

Disparate Tax Treatment and Information Gaps Create Uncertainty and Potential Abuse, 

GAO-11-750 (Washington, D.C.: Sept. 20, 2011).

23The organization, the LIHTC Working Group, consists of LIHTC industry participants 

who work together to try to resolve technical and administrative LIHTC program issues. 
 

Page 15 GAO-13-66 LIHTC Program Changes

formal guidance, but has received continued federal attention because of 

its complicated nature. The hold harmless provisions (table 2, item 9) are 

aimed at bolstering the financial viability of LIHTC projects by preventing 

rents from automatically falling when area income levels, on which the 

rents are based, decline. In so doing, the provisions resulted in a system 

in which, for instance, three projects on the same street could have three 

different sets of income and rent limits if they were placed in service in 

three different time periods. Accommodating all of the possibilities for 

different placed-in-service dates required projects to use multiple tables to 

find the applicable income and rent limits, and some program participants 

have found this confusing. Furthermore, the income and rent limits 

change annually when HUD publishes new area income levels. The 

owner of a LIHTC project must use the correct table, based on the 

building’s location and placed-in-service date, to determine the maximum 

income that a household may have to be a qualified low-income 

household, and the maximum gross rent that a household may be 

charged, based on the number of bedrooms in the unit, for the unit to 

qualify for the credit as a low-income unit. 

IRS issued explanatory newsletters about the hold harmless provisions, 

and IRS officials said they made public presentations to stakeholders 

about them, but some LIHTC program participants reported that the 

provisions were complicated, confusing, and hard to administer. For 

example, Texas HFA officials told us that the increase in the number of 

possible rent limits complicated communications with property owners 

and increased property owners’ compliance risks. A Vermont HFA official 

described how staff had to learn to calculate new limits, publish and 

distribute new tables, and explain the changes in their QAP. However, 

some HFAs told us that while the provisions were complex and 

burdensome, they had worked hard to understand them and had learned 

to work with them. IRS has continued to provide explanatory newsletters 

and IRS officials told us they made public presentations into 2012. A 

Treasury official acknowledged the complexity of the provisions and said 

further clarifying guidance might be warranted. However, the official also 

said that making a change to hold harmless guidance would require 

determining that the change merited more consideration than the many 

non-HERA topics that Treasury also needed to consider. 

HFAs we spoke with also took steps to implement the changes, including 

one of the changes HFAs generally thought was significant—the HERA 

basis boost. Our review of QAPs for nine HFAs and research by an 

industry group found that HFAs often modified their QAPs to implement 

the HERA basis boost but varied in how they used the new flexibility. Of 

HFAs Generally 

Implemented HERA 

Changes through Qualified 

Allocation Plans
 

Page 16 GAO-13-66 LIHTC Program Changes

the nine states we examined, eight modified their QAPs by revising their 

criteria for awarding the basis boost. According to a state official, the 

remaining HFA also revised its criteria for the basis boost but conveyed 

the changes to stakeholders through its website, public hearings, and 

newspapers.

In general, states varied in the criteria they developed for awarding the 

basis boost. We analyzed NCSHA summaries of the factors that HFAs 

reported considering in awarding the HERA basis boost in 2009, the first 

full year after HERA’s enactment. According to the summaries, 30 of the 

54 HFAs reporting cited specific factors beyond the single criterion given 

in HERA (financial feasibility).24

States’ use of the basis boost also varied over time. Our analysis of 

NCSHA summaries for 2008 through 2010 showed that HFAs’ use of the 

HERA basis boost became more widespread over that period. More 

specifically, while 12 HFAs reported not having implemented the basis 

boost in 2008, this number dropped to 3 in 2010. For example, the Florida 

HFA did not begin to use the boost until the change appeared in its 2011 

QAP because until then, the state was still benefitting from Gulf 

Opportunity Zone disaster credits and did not need the HERA basis 

boost.

The other 24 HFAs cited financial 

feasibility or other general guidance (17), did not report any factors (1), or 

chose not to implement the HERA basis boost (6). Research by NCSHA 

in 2010 noted that some states applied the boost statewide and some 

applied it to more specific geographical areas, project types, or projects 

with certain characteristics. NCSHA cited examples of states targeting the 

basis boost to developments that had tenants of different income levels, 

involved expensive land, were in rural or tribal areas or areas affected by 

natural disasters, featured “green building” practices or preservation 

initiatives, or were transit oriented. 

25

 

24Although 56 HFAs receive LIHTC allocations, not all of them report information to 

NCSHA. 

California HFA officials said they did not use the boost as much 

as some other states because California already had a large number of 

counties that were designated as difficult development areas (DDA) and 

had a state LIHTC program covering projects that might have benefitted 

25Gulf Opportunity Zone disaster credits are LIHTCs, in addition to regular, annual 

allocations available to states, given to states affected by Gulf Coast hurricanes.
 

Page 17 GAO-13-66 LIHTC Program Changes

from the HERA basis boost.26

HFAs also modified their QAPs and published technical information to 

reflect other program changes in HERA. For instance, soon after HERA 

was enacted, the Oregon HFA revised multiple sections of its QAP. In 

accordance with HERA changes, it added the historic nature of buildings 

and energy efficiency as criteria for awarding LIHTCs, updated policies on 

the availability of LIHTC projects for general public use, and inserted new 

policies on the use of the 9 percent floor. The Massachusetts HFA 

incorporated the increase in per capita allocations as well as the 9 

percent floor into its 2008 QAP. In addition, some of the states we 

reviewed published technical information to help program stakeholders 

comply with HERA program changes. For example, as they had done in 

previous years, California HFA officials sent a memorandum to LIHTC 

project owners and applicants in December 2011 on revised rent and 

income limits the HFA had published, using information from HUD. 

The officials said they did not use the 

HERA basis boost at all in 2012. The Massachusetts HFA began 

implementing the HERA basis boost in 2009 and continued to use it into 

2012. In its 2009 plan, the HFA identified 20 locations that were eligible 

for the HERA basis boost, a number that rose to 35 in its 2012 plan. 

HUD maintains a database of LIHTC-funded projects, which was last 

updated in July 2012, but the information it contains is incomplete. 

Although HUD has almost no direct administrative responsibility for the 

LIHTC program, as the federal government’s lead housing agency, it has 

been voluntarily collecting information on the program since 1996 

because of the importance of these credits as a source of funding for lowincome housing. HUD’s LIHTC Database, the largest source of federal 

information on the LIHTC program, aggregates project-level data that are 

voluntarily submitted by HFAs. HUD contracts with a consulting firm to 

help compile the database, which is updated annually and is available to 

the public on HUD’s website.27

 

26As previously noted, a DDA is any area designated by the Secretary of Housing and 

Urban Development as an area which has high construction, land, and utility costs relative 

to area median gross income.

Additionally, HUD sponsors studies of the 

LIHTC program that use these data. IRS, which jointly administers the 

program with HFAs, collects limited data that it needs to carry out its 

27http://www.huduser.org/portal/datasets/lihtc.html. 

Available LIHTC Data 

Are Incomplete and 

Provide Limited 

Insight into Program 

Trends 
 

Page 18 GAO-13-66 LIHTC Program Changes

mission of administering and enforcing the internal revenue laws.28 It 

does not maintain the information needed to assess a housing production 

program, such as the types of tenants targeted and whether projects are 

in urban or rural areas.29 

HUD’s LIHTC Database does not capture all LIHTC projects placed in 

service, for three main reasons. First, although most HFAs voluntarily 

report LIHTC project data to HUD each year, some do not report 

consistently. Forty-two of 56 HFAs submitted project data to HUD for 

each year from 2006 through 2010. In 2010, these 42 HFAs received 

about 89 percent of all per capita LIHTC allocations. Of the remaining 14 

HFAs, 2 did not report projects in any of the 5 years, while 12 did not 

report each year, but did report for at least 2 of the years. For these 12, 

all of the nonreporting was for 2008 through 2010 (the most recent 

reporting year), a period in which some HFAs were struggling to comply 

with a HERA requirement that they collect data on tenant characteristics 

(e.g., race and income) for LIHTC projects, according to HUD and 

NCSHA officials.30

The HERA provision containing this requirement authorized $6.1 million 

for fiscal years 2009 through 2013 for HUD to, among other things, 

provide technical assistance to HFAs and compile the tenant data, but 

HUD never received any appropriations for these tasks. HUD is working 

to fulfill the requirement with existing resources. For example, HUD 

streamlined the project and tenant data collections by merging the two 

 

 

28The lack of data is fairly typical with tax expenditures such as the LIHTC program. Tax 

expenditures are reductions in a taxpayer’s tax liability that result from special credits, 

deductions, exemptions and exclusions from taxation, deferral of tax liability, and 

preferential tax rates. We previously reported that even basic information about who 

claims tax benefits and which communities benefit from specific activities from tax 

expenditures is often lacking. As a result, information often has not been available to help 

Congress determine the effectiveness of some tax expenditures. For more information, 

see GAO, Tax Policy: Factors for Evaluating Expiring Tax Provisions, GAO-12-760T

(Washington, D.C.: June 8, 2012) and Community Development: Limited Information on 

the Use and Effectiveness of Tax Expenditures Could Be Mitigated through Congressional 

Attention, GAO-12-262 (Washington, D.C.: Feb. 29, 2012). 

29A private accounting firm has also collected LIHTC project information, including 

information on project characteristics, by surveying LIHTC investors and syndicators. 

However, this database also does not capture all LIHTC projects, and is not publicly 

available. 

30HERA at § 2835(d). Pub. L. No. 110-289 (codified at 42 U.S.C. § 1437z-8). 

HUD’s Database Is 

Incomplete Despite Efforts 

to Improve Data Collection 
 

Page 19 GAO-13-66 LIHTC Program Changes

efforts. It also required HFAs to submit data in a standardized electronic 

format via a secure web portal. According to HUD, this change is 

significant, as the prior data collection process involved a HUD contractor 

that contacted each HFA and then standardized the collected data, which 

HFAs often maintained in different formats. HUD said that although some 

HFAs would need several years to make the transition, the new system 

was the most cost-effective long-term solution. HUD also said it 

recognized the problem of underreporting in recent years but that until the 

transition to the new data collection method was completed, its options 

were to either knowingly underreport properties placed in service or not 

release any data for those years.

Second, in recent years, HUD has not identified or followed up on cases 

in which HFAs reported a substantially lower number of projects than in 

past years, although such information could potentially be incomplete. For 

example, HUD’s database showed that one state had between 23 and 49 

projects placed in service each year from 2006 through 2009, but only 2 

projects in 2010. When we followed up with the HFA in this state, HFA 

officials provided us with documentation showing that they had reported 

37 projects for 2010. Similarly, HUD’s database showed that another 

state had 2 projects placed in service in 2008, compared with 90 or more 

in each of the 2 previous years. An official from this state’s HFA told us 

that the actual number for 2008 was 96 properties. We provided HUD 

with these and other examples for their review. According to a HUD 

official, before 2008 its contractor followed up with HFAs on these types 

of data anomalies but now places less emphasis on this function because 

of resource limitations and the HERA requirement for tenant data. 

Instead, the contractor now focuses on assisting HFAs with meeting the 

tenant data requirement and follows up only with HFAs that do not report 

any project data at all. 

Third, at the time they reported to HUD, HFAs may not have had 

information on all projects placed in service. Specifically, HFA officials 

said that delays between the date when a project was placed in service, 

the date a project owner reported it to the HFA, and the date the HFA 

recorded it in its information system could result in underreporting of 

projects. HUD instructs states to review the property information 

previously submitted and include information for these omitted properties. 

As a result, these omissions may be corrected in subsequent data 

submissions. 

Even when HUD did receive project data, much of it was incomplete, 

omitting information on project characteristics such as the type of 

location, construction, and tenants targeted. The proportion of missing 
 

Page 20 GAO-13-66 LIHTC Program Changes

information on project characteristics increased after 2007 (see table 3). 

For example, the proportion of missing information on the types of tenants 

targeted increased from 5 percent in 2006 to 28 percent in 2010. A HUD 

official noted that the HERA provision requiring HFAs to collect data on 

the characteristics of tenants in LIHTC projects had made it more 

challenging for HFAs to also report the project data with existing 

resources. In addition, a HUD official explained that across HFAs, 

different offices maintain tenant-level and project-level data. He said that 

HUD’s data request was often completed by the offices with the tenant 

data, which might not have detailed project information. The official added 

that he had emphasized the need for HFAs to direct HUD’s request for 

project data to the appropriate office in presentations to an HFA 

association and in communications with individual HFAs. However, 

according to HUD, resource limitations have prevented HUD and its 

contractor from performing thorough follow up with HFAs about missing 

information on project characteristics.

Table 3: Percentage of Projects with Missing Information by Project Characteristics, Calendar Years 2006-2010, as of July 

2012

Project characteristic

Percentage of projects with missing information by 

year placed in service

2006 2007 2008 2009 2010

Location type (e.g., metropolitan, nonmetropolitan) 10% 8% 11% 14% 17%

Construction type (e.g., new construction, acquisition and rehabilitation) 5% 5% 10% 12% 17%

Types of tenants targeted (e.g., elderly, family, disabled) 5% 8% 17% 23% 28%

Source: GAO analysis of HUD’s LIHTC Database.

Note: Data are for the 42 HFAs that reported information on LIHTC projects each year from 2006 

through 2010.

Having complete data on the LIHTC program is important because of the 

program’s significance to overall federal efforts to meet the nation’s 

affordable housing needs. As previously noted, the LIHTC program is the 

largest subsidy program for constructing and rehabilitating low-income 

rental housing. Additionally, the program is used in conjunction with other 

federal housing programs, including HUD’s programs. For example, some 

LIHTC projects receive grants through HUD’s HOME Investment 

Partnership program and have mortgages that are insured by HUD’s 
 

Page 21 GAO-13-66 LIHTC Program Changes

Federal Housing Administration.31 HUD’s LIHTC Database is the federal 

government’s main source of information on LIHTC projects, and HUD 

and others have used data from 2007 and earlier—prior to some of the 

challenges discussed previously—to conduct research on the LIHTC 

program. For example, one study HUD sponsored examined the 

geographic distribution of LIHTC projects to assess whether program 

rules contribute to clustering of subsidized housing in central city and

high-poverty areas.32 Another HUD-sponsored study examined whether 

LIHTC projects continue to provide affordable housing after the 15-year 

period in which they are required to do so.33 In addition, the Rental Policy 

Working Group established by the White House’s Domestic Policy 

Council has used the data to examine the potential for harmonizing and 

streamlining property inspection requirements for rental properties with 

multiple sources of federal funding, including LIHTCs.34 However, as we 

have seen, a number of challenges faced by HUD and HFAs have 

adversely affected the completeness of HUD’s database. Without more 

complete data on the number, location, and characteristics of LIHTC 

projects, the federal government’s ability to continue evaluating program 

outcomes and overall federal efforts to provide affordable housing is 

limited. 

 

31HOME is the largest federal program that awards block grants to state and local 

governments exclusively to create affordable housing for low-income households. 

32Casey J. Dawkins, Exploring the Spatial Distribution of Low-Income Housing Tax Credit 

Properties, Assisted Housing Research Cadre Report, prepared for the Department of 

Housing and Urban Development, Office of Policy and Development Research 

(Washington, D.C.: February 2011). 

33Jill Khadduri, Carissa Climaco, Kimberly Burnett, Laurie Gould, and Louise Elving, What 

Happens to Low-Income Housing Tax Credit Properties at Year 15 and Beyond? Report 

prepared for the Department of Housing and Urban Development by Abt Associates, in 

partnership with VIVA Consulting (Washington, D.C.: August 2012). 

34The working group consists of the White House Domestic Policy Council, National 

Economic Council, Office of Management and Budget, HUD, U.S. Department of 

Agriculture, and Treasury. The purpose of the working group is to better align rental 

requirements across programs, and thereby increase the effectiveness of federal rental 

policy and improve participant outcomes. 
 

Page 22 GAO-13-66 LIHTC Program Changes

According to HUD data as of July 2012, the 42 HFAs that submitted 

information for each year from 2006 through 2010 reported that more 

than 5,300 LIHTC projects were placed in service over the 5-year period 

(see table 4).35

Table 4: Reported Number of LIHTC Projects Placed in Service, Calendar Years 2006-2010, as of July 2012

In total, these projects used more than $3 billion in 

LIHTCs and contained more than 421,000 living units. The reported 

number of projects and units placed in service declined over the 5-year 

period, particularly after 2008; however, the lack of complete project data, 

as discussed previously, prevents a reliable analysis of actual program 

trends. 

Number of projects placed in 

service

2006 2007 2008 2009 2010 Total

1,387 1,286 1,225 886 594 5,378

Number of units placed in service 112,612 100,980 86,283 65,409 56,265 421,549

Amount of LIHTCs used for 

projects placed in service $664,950,647 $661,318,390 $686,848,400 $568,352,441 $454,559,496 $3,036,029,374 

Source: GAO analysis of HUD’s LIHTC Database.

Note: Data are for the 42 HFAs that reported information on LIHTC projects each year from 2006 

through 2010. The lack of complete project data prevents a reliable analysis of program trends.

Although data at the national level are limited, information from the nine 

HFAs we contacted provide some insight into changes in the number of 

projects placed in service after HERA was enacted in 2008. Six of the 

nine HFAs indicated that the number of projects declined substantially 

between 2008 and 2009, while the other three experienced either modest 

or no declines. For example, California HFA officials said they had 203 

projects placed in service in 2008, compared with 140 in 2009. In 

contrast, Massachusetts HFA officials said they had 21 projects placed in 

service in both years. Of the six HFAs that had substantial declines, three 

continued to see decreases in 2010, while the remainder experienced 

modest to large increases in 2010.36

While a portion of LIHTC projects in HUD’s database lack information on 

location type, the data do indicate that the majority of LIHTC projects 

 

 

35LIHTC projects are generally placed in service 1 to 2 years after receiving tax credit 

allocations. For example, projects placed in service in 2010 likely received allocations in 

2008 or 2009.

36As discussed in the next section of this report, some of the unused credits were 

exchanged for cash grants or reallocated to future projects. 

Available Data Provide 

Limited Insight into Trends 

in the Number and 

Characteristics of LIHTC 

Projects
 

Page 23 GAO-13-66 LIHTC Program Changes

placed in service from 2006 through 2010 were located in metropolitan 

central and noncentral cities (e.g., suburbs). For each of these years, at 

least 69 percent of reported projects were in metropolitan areas, but given 

the proportion of projects with missing information on location type, trends 

in this characteristic cannot be precisely determined (see table 5). 

Table 5: Percentage of Reported LIHTC Projects Placed in Service from Calendar Years 2006-2010 by Location Type, as of 

July 2012

Location type

Percentage of projects by year placed in service

2006 2007 2008 2009 2010

Metropolitan/central city 42% 47% 40% 45% 43%

Metropolitan/noncentral city 27% 24% 30% 25% 27%

Nonmetropolitan 21% 21% 19% 16% 13%

Location type not indicated 10% 8% 11% 14% 17%

Source: GAO analysis of HUD’s LIHTC Database.

Note: Data are for the 42 HFAs that reported information on LIHTC projects each year from 2006 

through 2010. 

According to HUD data, the majority of reported LIHTC projects placed in 

service from 2006 through 2010 were newly constructed (see table 6). 

However, the amount of missing data on construction type after 2007 

makes it impossible to draw accurate conclusions on potential changes in 

the proportion of projects that were newly constructed and those that 

were acquisition and rehabilitation projects. 

Table 6: Percentage of Reported LIHTC Projects by Construction Type, Calendar Years 2006-2010, as of July 2012

Construction type

Percentage of projects by year placed in service

2006 2007 2008 2009 2010

New construction 58% 59% 55% 55% 54%

Acquisition and rehabilitation 33% 33% 31% 31% 27%

Both new construction and acquisition/rehabilitation 2% 1% 2% 1% 1%

Missing construction type 5% 5% 10% 12% 17%

Source: GAO analysis of HUD’s LIHTC Database.

Note: Data are for the 42 HFAs that reported information on LIHTC projects each year from 2006 

through 2010. Columns may not sum to 100 percent due to rounding.

According to data reported to HUD, the most common types of tenants 

targeted by LIHTC projects in 2006 and 2007 were families and elderly 

tenants (see table 7). However, as previously noted, the proportion of 

projects in HUD’s database with missing information on tenant types 
 

Page 24 GAO-13-66 LIHTC Program Changes

increased substantially after 2007. As a result, any reported changes in 

types of tenants targeted are not definitive. In addition, HUD officials told 

us that HFAs may have used different criteria for determining whether a 

project was targeted to particular groups of tenants, potentially resulting in 

inconsistencies across HFAs.

Table 7: Percentage of Reported LIHTC Projects by Type of Tenant Targeted, 2006-2010, as of July 2012 

Tenants targeted

Percentage of projects by year placed in service

2006 2007 2008 2009 2010

Family 45% 42% 44% 38% 30%

Elderly 24% 25% 23% 20% 21%

Disabled 9% 10% 15% 12% 15%

Homeless 3% 4% 8% 7% 7%

Other 6% 10% 7% 10% 7% 

Did not target 22% 20% 14% 13% 14%

Not indicated 5% 8% 17% 23% 28%

Source: GAO analysis of HUD’s National LIHTC Database.

Notes: Percentages may sum to more than 100 percent because projects can target more than one 

type of tenant. Data are for 42 HFAs that reported LIHTC projects to HUD in each of these years.

State and industry officials we spoke with said that isolating the effect of 

the HERA changes on the overall LIHTC market was difficult because of 

other program changes (e.g., creation of the Exchange Program) and 

economic developments (e.g., the recession and financial crisis) that 

occurred around the same time. Nonetheless, state and industry officials 

we spoke with identified specific LIHTC projects that they said would not 

have been completed without certain HERA provisions. In particular, they 

cited the temporary increase in per capita credit allocations, the 

temporary 9 percent floor, and the HERA basis boost as three provisions 

that helped the financial feasibility of some projects and likely prevented 

even further decreases in LIHTC projects after 2008. In addition, 

stakeholders said HERA changes particularly helped the financial 

feasibility of rural projects. 

Stakeholders Said 

HERA Provisions 

Helped the Financial 

Feasibility of Some 

LIHTC Projects
 

Page 25 GAO-13-66 LIHTC Program Changes

Because of HERA’s temporary increase in per capita credit allocations, 

HFAs received tens of millions of dollars more in allocations in 2008 and 

2009 than they would have otherwise. By statute, LIHTC allocation 

amounts are adjusted for inflation each calendar year, but for calendar 

years 2008 and 2009 only, HERA further increased allocations to each 

HFA. Adjusted for inflation, the per capita allocation in 2008 would have 

been $2.00, but HERA increased the amount to $2.20 that year and to 

$2.30 in 2009. The minimum allocation for small HFAs was increased to 

$2,555,000 in 2008 and $2,665,000 in 2009. Without HERA, HFAs would 

have received $61,836,050 less in per capita credits than they did in 2008 

and $62,408,937 less in 2009. For 2010, LIHTC allocations returned to 

the path that would have been in place if HERA had not been enacted 

(see table 8). 

Table 8: Per Capita LIHTC Allocations, Calendar Years 2006-2010, Including HERA Increases in 2008 and 2009

Calendar year Credit per capita Total per capita credits Percentage change in total credits from previous year

2006 $1.90 $575,565,080 --- 

2007 $1.95 $598,946,906 4.06

2008 $2.20 $680,421,802 13.60

2009 $2.30 $716,847,811 5.35

2010 $2.10 $662,928,791 -7.52

Source: GAO analysis of data from NCSHA and IRS. 

Some state officials we spoke with said that they allocated the additional 

credits to projects already under development and to new projects. For 

example, HFA officials in Michigan and Oregon told us that they used the 

additional credits to both fill funding gaps for projects that had previously 

received LIHTC allocations and to fund one or two additional projects in 

their states. Massachusetts HFA officials told us that they used the 

additional credits to finish projects that were in danger of not being 

completed because of drops in prices that investors were willing to pay for 

LIHTCs. 

Although HFAs received additional credits in 2008 and 2009, developers 

also returned more unused credits to HFAs in these years. According to 

Stakeholders Identified 

HERA Changes That 

Enhanced Project 

Feasibility

Temporary Increase in Per 

Capita Credits 
 

Page 26 GAO-13-66 LIHTC Program Changes

data from NCSHA, the total amount of credits developers returned to 

HFAs increased substantially in 2008 and 2009. The amount of returned 

credits in 2009 was more than 6 times the amount in 2006 (see table 9). 

Table 9: Amount of Credits Developers Returned to HFAs, Calendar Years 2006-

2010 

Calendar year Credits developers returned to HFAs

2006 $66,809,433

2007 $68,641,795

2008 $108,431,328

2009 $426,862,481

2010 $72,322,543

Source: GAO analysis of data from NCSHA.

An NCSHA official explained that developers returned credits for several 

reasons. For example, the NCSHA official noted that in 2008, developers 

had trouble finding LIHTC investors, resulting in a higher-than-normal 

amount returned to the HFAs. Also, in 2009, the Recovery Act’s 

Exchange Program allowed HFAs to exchange returned credits for cash 

grants, resulting in a very high amount of returns that year. For 2009, the 

amount of returned credits included those that were returned and 

exchanged, as well as those returned and possibly reallocated to other 

developers. According to the NCSHA official, virtually all of the returned 

credits that were not exchanged were reallocated either the same year or 

the following year. 

Some state housing officials and industry stakeholders said that HERA’s 

temporary floor for the 9 percent credit helped the financial feasibility of 

individual projects. Owing to the floating credit rate prior to HERA, 

developers that received the 9 percent credit actually received a credit 

approximating 8 percent. By setting a floor of 9 percent for projects 

placed in service by the end of 2013, HERA increased the amount of 

credits these projects could receive. For example, if a pre-HERA project 

had an eligible basis of $1,000,000 and the floating rate for the 9 percent 

credit was 8 percent, that project would be eligible to receive $800,000 in 

credits ($80,000 per year for 10 years). In contrast, by setting a floor of 9 

percent for the 9 percent credit, that same project would be eligible for 

$900,000 in credits ($90,000 per year for 10 years). 

Also, as previously noted, the HERA basis boost provision gave HFAs the 

ability to designate any building, regardless of location, as eligible for an 

enhanced credit of up to 130 percent of the building’s eligible basis rather 

Temporary 9 Percent Floor and 

Basis Boost 
 

Page 27 GAO-13-66 LIHTC Program Changes

than just those in a DDA or a QCT. One developer told us that every 

LIHTC project he had completed since the passage of HERA used the 

HERA basis boost, and that it and the 9 percent floor together had made 

a significant difference in his ability to complete projects. This developer 

cited a project in which these two provisions reduced a funding gap of 

$1,680,000 to $450,000, which the developer was able to close by other 

means. Another LIHTC developer noted that the 9 percent floor allowed 

LIHTC deals to be engineered with fewer funding sources and that in 

many cases such deals would not have been completed without this 

provision. In addition, North Carolina HFA officials told us that some 

projects had received tax credit awards in 2007 and 2008, but had 

funding gaps when the tax credit market collapsed and prices for tax 

credits fell before developers could secure equity from investors. For 

these projects, the HFA allowed developers to return their allocated 

credits and receive new credits with the 9 percent rate and the HERA 

basis boost, thus filling the funding gaps. According to the North Carolina 

officials, these HERA provisions helped in completing a total of 46 

projects that likely would not otherwise have been completed.

In addition, HFA officials in Oregon and Michigan noted that they used the 

HERA basis boost for permanent supportive housing—long-term housing 

projects with supportive services for homeless persons with disabilities or 

other barriers—which have lower income tenants. Similarly, HFA officials 

in Florida said that the HERA basis boost helped fund three projects that 

will be placed in service in either 2012 or 2013 for tenants that were 

homeless and had lower incomes. According to the officials, such projects 

are typically difficult to develop because project cash flows are limited 

because tenants may not have any income when they move in. HFA 

officials in Minnesota said that without the 9 percent floor, it would have 

been difficult to fund projects serving the long-term homeless, those with 

special needs, and those with lower incomes. 

According to state housing officials and industry participants, certain 

HERA provisions helped mitigate some of the challenges associated with 

developing projects in rural areas. For example, the maximum amount of 

rent a project owner can charge is based on the area’s income limits. 

According to officials from the Council for Affordable and Rural Housing, 

because rural areas often have lower income limits compared with urban 

areas, rural projects also often have lower cash flows from rents. They 

noted that the HERA provision that allowed projects in rural areas to base 

tenant income limits on the greater of the area median gross income or 

the national nonmetropolitan median gross income was one of the most 

significant HERA provisions for rural housing. In cases where the national 

Stakeholders Said HERA 

Changes Helped Rural 

Projects
 

Page 28 GAO-13-66 LIHTC Program Changes

nonmetropolitan measure is greater than the local area measure, project 

owners can set higher rent levels than they would have prior to HERA. 

This flexibility, in turn, can give project owners access to a broader pool of 

qualified tenants and increase cash flows from rent, potentially making 

the projects more attractive to investors. Additionally, according to some 

industry stakeholders, investor demand for LIHTCs is often weaker in 

rural areas than in urban areas in part because rural LIHTC projects tend 

to be smaller in scale. As a result, fixed transaction costs are spread over 

fewer units, and a few vacancies can have a relatively greater impact on 

the viability of a small project. Some state officials told us they applied the 

HERA basis boost to rural areas to help strengthen the financial viability 

of projects in these locations. For example, Michigan HFA officials said 

they applied the HERA basis boost to rural areas because rural projects 

would not have been desirable to investors without it.

The LIHTC program is the largest federal program for building and 

rehabilitating affordable rental housing and provides billions of dollars in 

tax credits each year. Through HERA, Congress made a number of 

changes to the program and sought analysis of credit allocations made 

before and after the act’s implementation. However, limitations in 

available program data hamper this type of analysis and potentially other 

research that could be useful to policymakers. HUD is not required to 

collect data on LIHTC projects and has very limited administrative 

responsibility for the program, but it has collected some information from 

HFAs for many years. We commend HUD for taking steps as the lead 

federal housing agency to collect and disseminate project information. 

This information has been used to examine important issues, such as the 

extent to which subsidized housing remains affordable over the long term 

and the potential for harmonizing requirements across federal housing 

programs. But, in recent years, the completeness of HUD’s LIHTC 

Database has worsened, due partly to resource constraints and 

challenges HUD and HFAs face in meeting new requirements for 

compiling information on tenants in LIHTC projects. In addition, HUD and 

its contractor have not followed up on data anomalies that could indicate 

incomplete reporting. Our work suggests that HUD’s database may be 

missing many projects that could be captured through additional follow-up 

efforts. Without improvements in the database, the federal government’s 

ability to evaluate basic program outcomes—such as how much housing 

was produced—and other aspects of federal housing policy may suffer. 

Conclusions 
 

Page 29 GAO-13-66 LIHTC Program Changes

HUD has taken steps to improve its data collection process and faces 

resource constraints. However, the importance of the LIHTC program to 

federal housing policy underscores the need for continued attention to 

data quality and completeness. Therefore, we recommend that the 

Secretary of Housing and Urban Development (1) evaluate options for 

improving the completeness of HUD’s LIHTC Database, including 

following up on data anomalies and enhancing the role of HUD’s 

contractor in data collection and quality control; and (2) based on this 

evaluation, take additional steps to improve the data. 

We provided a draft of this report to HUD, IRS, and Treasury for their 

review and comment. We received written comments from HUD’s Acting 

Assistant Secretary for Policy Development and Research that are 

reprinted in appendix III. We also received technical comments from IRS 

and Treasury, which we incorporated into the final report where 

appropriate.

In its written comments, HUD agreed with our conclusions and 

recommendations but expressed concerns about the draft report’s 

characterization of HUD’s LIHTC Database and data collection efforts. 

HUD said that our draft report did not adequately explain either the 

transition HUD was experiencing in its data collection or changes it had 

made to the collection process. HUD noted, as did our draft report, that 

while HERA required the agency to compile data on tenants in LIHTC 

units and authorized $6.1 million for this purpose, Congress did not 

appropriate these funds. HUD stated that to more cost-effectively collect 

both the tenant and property data, it merged the two efforts and required 

HFAs to submit all of the data through a secure web portal in a 

standardized electronic format. HUD said that it understood that this 

requirement would entail a multiyear transition for some HFAs, but also 

noted that in the long run this solution was the most cost-effective way to 

collect the information. Additionally, HUD said it recognized that its 

database had suffered from underreporting in recent years but said that 

until the transition to the new data collection method was completed, its 

options were either to knowingly underreport properties placed in service 

or to not release any data for those years. In response to HUD’s 

comments, we added language to the final report clarifying the connection 

between resource constraints for the implementation of the tenant data 

requirement and the completeness of the project data. We also added 

language describing how HUD had modified its data collection process 

and its rationale for reporting incomplete data rather than no data. 

Recommendation for 

Executive Action 

Agency Comments 

and Our Evaluation
 

Page 30 GAO-13-66 LIHTC Program Changes

HUD also expressed concern about our use of the word “inaccurate” to 

describe potential shortcomings in some of the information in the LIHTC 

Database. HUD said that it would never publicly release information that it 

thought might be inaccurate and suggested that we substitute 

“incomplete” for “inaccurate.” Our draft report generally used the word 

“incomplete” to characterize the information in the LIHTC Database but in 

three places used the phrase “potentially inaccurate information” to 

describe cases in which the LIHTC Database showed substantially fewer 

projects for an HFA than the number we obtained from the HFA directly. 

We agree that “incomplete” is a more appropriate term and revised the 

final report to use that word throughout.

We are sending copies of this report to interested congressional 

committees, the Secretary of the Treasury, the Commissioner of Internal 

Revenue, and the Secretary of Housing and Urban Development. This 

report is also available at no charge on the GAO website at 

http://www.gao.gov. 
 

Page 31 GAO-13-66 LIHTC Program Changes

If you or your staffs have any questions about this report, please contact 

us at (202) 512-8678 or garciadiazd@gao.gov, or (202) 512-9110 or 

whitej@gao.gov. Contact points for our Offices of Congressional 

Relations and Public Affairs may be found on the last page of this report. 

GAO staff who made major contributions to this report are listed in 

appendix IV.

Daniel Garcia-Diaz

Acting Director

Financial Markets and Community Investment

James R. White

Director

Strategic Issues
Appendix I: Objectives, Scope, and 

Methodology

Page 32 GAO-13-66 LIHTC Program Changes

This report discusses (1) how the Internal Revenue Service (IRS) and 

selected housing finance agencies (HFA) implemented the Housing and 

Economic Recovery Act of 2008 (HERA) changes to the Low-Income 

Housing Tax Credit (LIHTC) program, (2) what the Department of 

Housing and Urban Development’s (HUD) data on LIHTC projects show 

about the number and characteristics of projects completed from 2006 

through 2010 and any data limitations, and (3) the views of program 

stakeholders about the effects of the HERA changes on these projects.

To assess how IRS and selected HFAs implemented HERA changes to 

the LIHTC program, we reviewed IRS guidance, memorandums, and 

planning documents. We also interviewed IRS and Department of the 

Treasury officials. In addition, we interviewed officials from nine HFAs: 

California, Florida, Massachusetts, Michigan, Minnesota, North Carolina, 

Oregon, Texas, and Vermont. We selected these HFAs to cover different 

regions of the country and amounts of tax credit allocations. The selected 

states are not representative of the entire LIHTC market. For the selected 

HFAs, we reviewed qualified allocation plans (QAP) that contained 

detailed selection criteria and application requirements for LIHTCs. To 

further learn how HERA changes were implemented, we interviewed 

other industry stakeholders, such as industry associations, investors, 

syndicators, and housing developers. 

To examine HUD’s data on LIHTC projects and what these data show 

about the number and characteristics of LIHTC projects completed from 

2006 through 2010, we analyzed information from HUD’s LIHTC 

Database.1

 

1

The most recent data available from the database are for properties placed in service in 

2010. 

HUD collects these data from HFAs and maintains 

information on LIHTC-financed projects once they are placed in service. 

We conducted reasonableness checks on the data to identify any 

missing, erroneous, or outlying figures. We also asked the nine HFAs 

previously mentioned to check HUD’s numbers of projects placed in 

service from 2006 through 2010 against their own records, and 

interviewed HUD about how it and its contractor compiled the data. As 

discussed in the body of this report, we found that HUD’s data may not 

contain all LIHTC projects placed in service as of 2010 for several 

reasons, including (1) challenges states face in implementing new 

requirements for reporting tenant data and (2) delays between when a 

project is placed in service and when that information is entered into the 

Appendix I: Objectives, Scope, and 

Methodology 
Appendix I: Objectives, Scope, and 

Methodology

Page 33 GAO-13-66 LIHTC Program Changes

state’s data system and reported to HUD. As a result, the number of 

reported projects placed in service as of 2010 may be understated. We 

also found that a substantial proportion of projects in the database had 

missing values for key project characteristics. For this reason, changes in 

the reported number and characteristics of projects over time should be 

interpreted with caution. While we acknowledge these limitations, we 

chose to present the LIHTC data as reported by HUD because they 

provided the broadest coverage of LIHTC projects placed in service 

through 2010. We concluded that the data elements we used were 

sufficiently reliable for describing limitations of the data and presenting 

the project information HUD had compiled as of July 2012. For each year, 

we totaled the number of projects placed in service. Due to the limitations 

of HUD’s data, we supplemented this analysis by examining information 

from the nine HFAs we contacted to identify any state-level trends. Using 

the HUD data, we calculated the proportion of projects with certain 

characteristics, including location type (metropolitan/central city, 

metropolitan noncentral city, nonmetropolitan), construction type (new 

construction, acquisition/rehabilitation, both new construction and 

acquisition/rehabilitation), and the type of tenants targeted (elderly, family, 

disabled, homeless, other). In addition, because HERA increased the 

amount of credits allocated to states in 2008 and 2009, we analyzed 

trends in annual LIHTC allocations from 2006 through 2010 using data 

collected by the National Council of State Housing Agencies (NCSHA). In 

order to assess the reliability of the NCSHA data we analyzed, we 

reviewed documentation and interviewed NCHSA officials about their 

methods for collecting and reporting the data. We concluded that the 

NCHSA data were sufficiently reliable for our purposes. 

To obtain the views of selected HFAs and industry participants about the 

effects of the HERA changes on LIHTC projects, we interviewed officials 

from the HFAs and industry stakeholders noted previously. We obtained 

their views on which HERA changes were most significant, the extent to 

which the HERA changes helped complete projects that otherwise would 

not have been feasible, and the extent to which the HERA changes 

affected the characteristics of projects that received LIHTC allocations. In 

addition, we reviewed documentation on projects that industry 

stakeholders said had been affected by the changes.

We conducted this performance audit from February through December 

2012 in accordance with generally accepted government auditing 

standards. Those standards require that we plan and perform the audit to 

obtain sufficient, appropriate evidence to provide a reasonable basis for 

our findings and conclusions based on our audit objectives. We believe 
Appendix I: Objectives, Scope, and 

Methodology

Page 34 GAO-13-66 LIHTC Program Changes

that the evidence obtained provides a reasonable basis for our findings 

and conclusions based on our audit objectives.
Appendix II: Specific 2008 Changes Related to 

the Low-Income Housing Tax Credit

Page 35 GAO-13-66 LIHTC Program Changes

Table 10 summarizes the changes related to the LIHTC program made in 

the Multi-Family Housing subtitle of HERA.1

Table 10: Specific LIHTC Provisions Enacted in 2008, by Category

Temporary increase in per capita credit allocations to states

• For 2008 and 2009 only, increased the per-resident credit amount a state may allocate and the small-state minimum annual cap

Determination of credit rate

• For buildings placed in service after July 30, 2008, and before December 31, 2013, established a 9 percent minimum credit rate 

for newly constructed and substantially rehabilitated nonfederally subsidized buildings 

• Redefined the criteria for considering whether a building is federally subsidized by not counting certain federal loans and 

assistance

Changes to definition of eligible basis

• Gave states the flexibility to designate buildings as eligible for an enhanced credit of 130 percent of the normal amount when the 

buildings needed the enhanced credit in order to be financially feasible

• Increased the minimum rehabilitation expenses needed for existing buildings to be eligible for the credit

• Expanded the size of the community service facility that is counted as part of the eligible basis of a low-income building

• Clarified how federal grants are treated in reducing a building’s eligible basis

• Redefined related persons to include only those with a 50 percent ownership commonality (raised from 10 percent)

• Expanded the definition of a federally assisted building and included state-assisted buildings in the waiver of the 10-year rule on 

change of ownership 

Other simplification and reform of low-income housing tax incentives

• Repealed prohibition on the credit for buildings receiving HUD moderate rehabilitation help

• Gave projects 1 year, not 6 months, after credit allocation to incur 10 percent of reasonably expected costs

• For buildings disposed of, released the disposition bond requirement to avoid recapture

• Added energy-efficiency and ”historic nature” criteria to criteria that states must set forth in qualified allocation plans

• Added an exception to a general rule prohibiting 100 percent full-time student households from occupying low-income units to 

allow a unit occupied by a student who had previously received foster care to be eligible for the credit 

• Changed median income rules in rural areas

• Clarified a provision so that a project would not fail the general public use requirement just because it favored tenants who had 

special needs, were members of specified groups, or were involved in artistic or literary activities

Treatment of basic housing allowances

• Excluded military basic housing allowances from income for purposes of income eligibility rules in certain locations

Refunding treatment for certain multifamily housing bonds

• Treated a bond issued to refinance a first issue of bonds as a refunding issue 

 

1

Pub. L. No. 110-289, div. C, title I, subtitle A, 122 Stat. 2878-2888 (July 30, 2008).

Appendix II: Specific 2008 Changes Related 

to the Low-Income Housing Tax Credit
Appendix II: Specific 2008 Changes Related to 

the Low-Income Housing Tax Credit

Page 36 GAO-13-66 LIHTC Program Changes

Coordination of certain tax-exempt bond rules and credit rules

• Conformed rules so that in both cases certain restrictions will be satisfied if the next available unit in a building is rented to a new 

tenant who satisfies income and rent-restriction requirements

• Conformed rules related to residential units occupied by 100 percent low-income student households

• Conformed rules related to single-room occupancy housing

Hold harmless for reductions in area median gross income

• Changed how area median gross income is determined

Exception from annual recertification requirement

• For projects that are 100 percent low income, waived the requirement for annual tenant income recertifications

Source: GAO analysis of Joint Committee on Taxation, General Explanation of Tax Legislation Enacted in the 110th Congress, JCS-1-

09 (March 2009). 
Appendix III: Comments from the Department 

of Housing and Urban Development

Page 37 GAO-13-66 LIHTC Program Changes

Appendix III: Comments from the 

Department of Housing and Urban 

Development
Appendix III: Comments from the Department 

of Housing and Urban Development

Page 38 GAO-13-66 LIHTC Program Changes
Appendix III: Comments from the Department 

of Housing and Urban Development

Page 39 GAO-13-66 LIHTC Program Changes
Appendix IV: GAO Contacts and Staff 

Acknowledgments

Page 40 GAO-13-66 LIHTC Program Changes

Daniel Garcia-Diaz, (202) 512-8678 or garciadiazd@gao.gov

James R. White, (202) 512-9110 or whitej@gao.gov

In addition to the contacts named above, Steve Westley and Joanna 

Stamatiades (Assistant Directors), Emily Chalmers, William Chatlos, Lois 

Hanshaw, Lawrence Korb, May Lee, John McGrail, Marc Molino, Edward 

Nannenhorn, Winnie Tsen, and Jason Wildhagen made important 

contributions to this report.

Appendix IV: GAO Contacts and Staff 

Acknowledgments 

GAO Contacts 

Staff 

Acknowledgments 

(250655)
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