Why is it so important for you to document your placed in service date? And when I say placed in service date, I mean each building’s placed in service date. It establishes the date from which a unit in that building has the potential to produce a low income housing tax credit.
To generate a low income housing tax credit, a unit must:
- Be in service a full calendar month; and
- Be occupied by a qualified resident.
If a unit is placed in service on June 1, it can produce a credit for June if occupied by an LIHTC-qualified resident by June 30th. If that same unit is not placed in service until June 2nd, it can generate its LIHTC in July if occupied by a qualifed household on or before July 31st. It is very important that both the developer and property manager for an LIHTC project understand this rule.
- A developer projects when a unit will start producing its credit to determine how much investment it will attract from the limited partner. When laying out a project’s construction schedule, the developer must insure each unit will be placed in service in time to establish its potential to produce its credit on time.
- A property manager is responsible for leasing each LIHTC unit to a qualified resident in time for it to actually generate its credit on schedule.
For new construction, each building’s placed in service date is typically based on the date of its certificate of occupancy (C of O), or a temporary C of O. If a building’s C of O is dated May 2nd, it has the potential to start producing an LIHTC in June. For acquisition/rehab projects, the acquisition credits are placed in service on the date of acquisition. If the ownership entity that will benefit from the credits purchases the project on June 1st, it has the potential to begin producing credits in June. If the sale of the project is delayed by even one day, the date of acquisition is June 2nd and the project’s ability to generate LIHTC does not kick in until July.
- If a building’s rehab credits are placed in service the year of acquisition, it can begin producing both acquisition and rehab credits in July.
- If the rehab is not placed in service until sometime the following year, the building can start generating both acquisition and rehab credits in January of the year the owner places the rehab in service.
And, this is very important. No unit actually starts producing its LIHTC until occupied by a qualified household. It is the resident’s tenant income certification that makes the LIHTC happen.
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