Because the credits must be spread over 10 years, investors typically discount the value to about 75 cents on the dollar. Investors in tax credit projects can use the credits to reduce their tax liability, dollar for dollar, each year for 10 years. The number of low-income units in the project determines the percentage of qualified costs used to calculate the tax credit. According to IRS rules, low-income occupancy must be maintained for at least 15 years. However, there are very strong federal incentives to maintain the restrictions for 30 years, and some states impose additional requirements.
Noncompliance carries stiff penalties, including retroactive tax liabilities for the investors.
If your agency is considering developing a project that may qualify for low-income housing tax credits, the first step is to contact the agency responsible for tax credit allocation in your state to learn about the application process and the criteria by which the agency awards credits. It is a good idea to contact someone in an agency similar to yours who has gone through the application and allocation process in your state. Many experienced consultants are available to help you through the process, especially if this is your first attempt. The application process is very competitive in most states. Some states accept applications continuously throughout the year, while others accept them only at specific times.