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Guide for Completing Form 8823 - page 59 / 197





59 / 197

the extended use agreement between ABC and the state agency.43 On February 1, 2004, John and Mary are determined to be income-qualified and move into a low-income unit project. John and Mary timely complete their income recertification each year 2005 through 2007. The unit has always qualified as a low-income unit, except when the unit was not suitable for occupancy during the rehabilitation period.

Based on the 2007 annual income recertification, the unit is a low-income unit at the beginning of XYZ’s credit period on January 1, 2008, when XYZ (a calendar year taxpayer) begins claiming the credit. XYZ should follow the procedures under Rev. Proc. 2003-82 to test income at the beginning of the credit period as described above.

NOTE: Vacant units previously occupied by income-qualified households are not low-income units on January 1, 2008. The owner must apply IRC §42(f)(2).*

Income Qualifying Households During First Year of the 10-Year Credit Period

Under IRC §42(f)(2), the applicable fraction for the first year of the credit period is computed based on a month-by-month accounting of units or floor space occupied by income-qualified households. In the case of buildings that were acquired and then rehabilitated, there are two separate allocations of credit documented on two Forms 8609; one for the acquisition credit and a separate allocation for the rehabilitation credit. However, the owner is not required to determine two applicable fractions. Under IRC §42(e)(4)(B), the applicable fraction for the substantial rehabilitation credit will be the same as the applicable fraction for the acquisition credit. Therefore, for purposes of computing the applicable fraction under IRC §42(f)(2), the following units are considered low-income units:

  • 1.

    Units occupied before the beginning of the credit period, which are determined to be low-income unit at the beginning of the credit period under Rev. Proc. 2003-82.

  • 2.

    Units initially occupied after the beginning of the credit period by newly certified income-qualified households (regardless of whether rehabilitation costs have been incurred for the unit).

3. Units occupied by income-qualified households that moved from other units within the project. The household’s lease and tenant income certification (with effective date) move with the household. See the section above titled “Tenant Moves to Another Low-Income Unit” for complete discussion.

Units are not included in the numerator of computation of the applicable fraction if:

  • 1.

    The unit is occupied by a nonqualified household;

  • 2.

    The unit is vacant and was last occupied by a nonqualified household;


*See IRC §42(h)(6)(B)(v)*


Revised October 2009

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