9 Percent Floor Extension Doesn’t Apply to Forward Commitments

Published by Michael Novogradac on Monday, January 21, 2013 - 12:00am

As mentioned in an earlier post, earlier this month in H.R. 8, the American Taxpayer Relief Act of 2012, Congress approved an extension of the 9 percent low-income housing tax credit (LIHTC) floor. While this extension is positive news for affordable housing developers, the H.R. 8 made a notable change to the law.

As enacted in H.R. 8, the 9 percent floor applies “with respect to housing credit dollar amount allocations made before January 1, 2014.” (emphasis added)

This distinction is important: the 9 percent floor applies only to allocation authority originating in 2013 and earlier; it does not apply to binding commitments made for 2014 and future allocation authority.

The Internal Revenue Code and guidance from the IRS make a clear distinction between allocations and forward binding commitments. For example, in IRS Information Letter 2001-0292, the IRS says “a binding commitment is not an allocating document that reduces the state’s housing credit ceiling (as defined under § 42(h)(3)(C)) for the year the binding commitment is made. Rather, the state’s housing credit ceiling is reduced for the year the allocation is made.”