Chapter 9 Category 11e Changes in the Applicable Percentage
This category is used to report violations associated with the Eligible Basis of a building (discussed in chapter 8) or any occurrence that result in a decrease in the Applicable Percentage of a building. This chapter addresses noncompliance affecting the Applicable Percentage of a building.
The low-income housing credit amount is based on certain costs associated with a building (eligible basis) and the portion of the building (Applicable Fraction) that low- income households occupy. The cost of acquiring and rehabilitating, or constructing a building constitutes the building's Eligible Basis. The portion of the Eligible Basis attributable to low-income units is the building's Qualified Basis. The Qualified Basis is multiplied by a factor (Applicable Percentage) so that the credit is limited to 70 percent or 30 percent of the Qualified Basis.1 In summary, the annual credit is:
Eligible Basis x Applicable Fraction = Qualified Basis
Qualified Basis x Applicable Percentage = Annual Credit
Generally, under IRC §42(f)(1), the annual credit can be claimed for 10 taxable years, beginning with the taxable year in which the building is placed in service; or, at the election of the taxpayer, the succeeding year2. Under IRC §42(f)(2)(A), there is a special rule for the first year of the credit period. Any reduction in the credit allowable for the first year of the credit period by reason of the rule is allowable for the first taxable year following the credit period. (See IRC §42(f)(2)(B).) In addition, under IRC §42(f)(3), if the qualified basis as of any taxable year in the 15-year compliance period (after the first year) exceeds the qualified basis as of the close of the first year of the credit period, then the applicable percentage applied to the excess Qualified Basis is two-thirds of the Applicable Percentage that would otherwise apply.
*IRC §42(b)(1)(B)* provides that a new building that is not federally subsidized is eligible for an Applicable Percentage equal to a 70 percent present value credit while a new building that is federally subsidized and an existing building are eligible for a 30 percent present value credit.
Monthly credit tables published in the Internal Revenue Bulletin provide the actual Applicable Percentages to be used in calculating the credit. These tables effectively adjust the rates on a monthly basis so that the present value over the ten-year credit period will continue to yield the 70 percent and 30 percent figures.
*A special rule under IRC §42(b)(2)(B) for non-federally subsidized building placed in service after July 30, 2008, and before December 31, 2013, provides that the applicable percentage shall not be less the 9 percent.*
Revised October 2009