Alabama Must Consider LIHTC Restrictions in Property Tax Assessment

In Alabama, a court recently ruled against the state’s Department of Revenue (DOR) concerning its policy of disregarding LIHTC extended-use restrictions when determining assessment of value for property taxes. The Alabama Affordable Housing Association (AAHA) had filed a lawsuit arguing the DOR was wrong in treating low-income housing incentives as taxable assets. The Circuit Court of Jefferson County ruled in favor of the AAHA. The ruling said counties “must take into account the legal restrictions on rents and use and operation of such properties.”

According to the decision, “Unlike conventional multifamily apartment properties, LIHTC properties are substantially restricted by federally-mandated land use restrictions . . . for periods of 15 to 30 years or more; such restrictions include limitations on the rents that may be charged, the income and status of tenants to whom the housing units of the property may be rented, and adherence by the owner to certain maintenance and upkeep requirements. These restrictions negatively impact the cash flow, marketability, and thus, the fair and reasonable value of the property.”

The IRS requires LIHTC sites to have an extended-use period with the state housing agency for an additional 15 years after the initial 15-year compliance period. State housing agencies still monitor compliance for LIHTC properties during the extended-use period; however, noncompliance during the extended-use period isn’t reported to the IRS and generally won’t trigger LIHTC recapture under Internal Revenue Code §42. It’s important to note that the extended-use period compliance requirements vary state by state, and owners should always check with the state housing agency and review the LIHTC land use restriction agreement (LURA) recorded against the property.