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IRS Allocation of Unused LIHTCs Again Reveals High Use of Incentive

Published by Dirk Wallace on Tuesday, October 10, 2023 - 12:00AM

The Internal Revenue Service (IRS) granted more than $3.2 million in unused low-income housing tax credit (LIHTC) allocation authority to states this week, continuing a recent downward trend in unused LIHTCs and highlighting the fact that states use well more than 99% of their LIHTC allocation.

Revenue Procedure 2023-32 lists the 28 states that will receive allocation of unused LIHTCs. Three states–Texas, Florida and New York–received more than $200,000 in unused LIHTCs, while nine received less than $50,000. The IRS distributed unused credits among states that used all but a de minimis amount of their 2022 allocation authority.

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Unused LIHTC authority often results from states and territories having remaining LIHTC authority too small to be allocated to affordable housing developments. Specifically, the unused housing credit carryover for a state for any year is the excess of the unused state LIHTC ceiling for the previous year over the total housing credit dollar amount allocated for the current year.

The overall amount this year marked a return to the traditional level of overall unused LIHTCs after a two-year period that saw $7.8 million in unused LIHTCs in 2021 and $5.4 million in 2022. The 2021 and 2022 figures are likely because the COVID-19 pandemic resulted in construction delays and larger amounts of returned credits, some of which were not reallocated.

National demand for the LIHTC remains robust and unused authority should not be confused with a general lack of demand: The national unused pool from 2023 is equal to about 0.3% of the national 9% LIHTC allocation authority. And while the total per-capita allocation in 2023 grew by $55.4 million over 2022 (due to a significant jump in the per-capita multiplier), the unused allocation dropped by $2.4 million.

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Of the 28 states that received an allocation of unused credits, six (Maryland, Nevada, New Jersey, Texas, Utah and Wisconsin) were not on the list in 2022. Meanwhile, five states–Alabama, California, Indiana, Maine and Missouri–received unused credits in 2022 but not 2023.

Takeaway: Reallocation Amount Shows High Use of Financing Tool

Most states consistently use their full LIHTC allocation and even those that don’t still use most of it. That results in the consistently small amount of credits available for reallocation to the states (even in 2021–the outlier of the past decade, with $7.8 million in unused LIHTCs–only 0.8% were unused).

While the original allocation ensures that states can use the LIHTC where it’s needed, the allocation of unused LIHTCs shows that the incentive is working as it should.


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