Chapter 24 Line 13 Building Disposition
Recapture of the accelerated portion of credits may be caused not only by noncompliance with the LIHC program *requirements,* but by either the sale or other disposition of an LIHC building or the sale of an ownership interest in such a building. It is important to report all dispositions* of low-income buildings that will not continue to be operated as a qualified low-income building after the disposition* so that the IRS can determine whether the taxpayer has complied with the requirements of IRC §42(j); i.e., the credits have been appropriately recaptured. 1
Types of Building Dispositions
Line 13a on Form 8823 identifies four categories of building dispositions.
1. SALE - Types of activities that would constitute a “sale” (which does not necessarily involve the seller receiving money) include:
Fee Title Sale of Building - Fee title passes from the seller to a whole new entity (buyer)
Termination of Partnership
FORECLOSURE - Foreclosure is the legal process reserved by a lender to terminate the borrower's interest in a property after a loan has been defaulted. On foreclosure, the owner is deemed to have made a sale of the property for the outstanding amount of the mortgage debt.
Deed of Property in Lieu of Foreclosure - the owner voluntarily conveys the property to the mortgage holder to avoid foreclosure proceedings.
DESTRUCTION - Destruction is related to a building’s physical structure, and
not to the ownership interest in the building. The destruction affects the building in its entirety, i.e., the eligible basis of the property is reduced to $0. The destruction is permanent and the building is not expected to operate as a tax credit project again. Violations of the physical inspection standards, or casualty losses that are temporary in nature should not be reported as destruction, which is permanent.
4. OTHER (Attach Explanation) – Any event, not listed above, which results in the disposition of a low-income housing credit unit, building, or property.
See Exhibit 24-1 for an explanation of the recapture requirements
Revised October 2009