The eligible basis of the building must be reduced by the amount of the grant used to purchase the computers. The reduction in eligible basis is a credit recapture event under IRC §42(j).
Buildings Placed in Service After July 30, 2008
IRC §42(d)(5)(A) was amended as part of the Housing Assistance Tax Act of 20085 and now provides that the eligible basis of a building shall not include any costs financed with the proceeds of a federally funded grants. Federally-sourced grants used for the operation of an LIHC building do not require a reduction of the eligible basis.
Example 3: Federally-Funded Grant Used to Operate LIHC Building
An owner constructed an LIHC building that was placed in service on September 1, 2008, and 2008 is the first year of the credit period. On June 25, 2009, the owner received a grant funded with Federal funds to buy computers that will be used by the office staff to operate the LIHC building. No reduction of the building’s eligible basis is required.
Funds not Considered Grants
None of the following6 shall be considered a grant made with respect to a building (eligible basis) or its operation:
Rental assistance under section 521 of the Housing Act of 1949,
Assistance under section 538(f)(5) of the Housing Act of 1949,
Interest reduction payments under section 236 of the National Housing Act,
Rental assistance under section 202 of the Housing Act of 1959,
Rental assistance under section 811 of the Cranston-Gonzalez National
Affordable Housing Act,
Modernization, operating and rental assistance pursuant to section 202 of the Native American Housing Assistance and Self-Determination Action of 1996,
Assistance under title IV of the Stewart B. McKinney Homeless Assistance Act,
Tenant-based rental assistance under section 212 of the Cranston-Gonzalez
National Affordable Housing Act,
Assistance under the AIDS Housing Opportunity Act,
Per diem payments under section 2012 of title 38, United State Code,
*See section 3003(d) of the Act.* *From the explanation of the Housing Assistance Tax Act of 2008 prepared by the Joint Committee on Taxation.*
Revised October 2009