Second, eligible basis is determined by subtracting non-depreciable costs, such as land, permanent financing costs, rent reserves and marketing costs. The project developer may also voluntarily reduce the requested eligible basis in order to gain a competitive advantage. The qualified basis is multiplied by the federal tax credit rate, published monthly by the IRS, to determine the maximum allowable tax credit allocation. The rate applicable to a project is the rate published for the month each building is placed in service or in an earlier month elected by the sponsor. The allocation cannot exceed the initial reservation amount and may be reduced if an analysis determines that the maximum allowable amount would generate excess equity proceeds to the project.
Some states supplement the qualified basis method with other methodologies.
Texas, for example, will make an alternate calculation based on the gap between equity and funding in addition to the qualified basis method, and a third alternative calculation can be submitted by the applicant. The state will then determine the actual tax credit by choosing the lowest amount generated by these three methods.