Starting to Claim Credits

Q The tax credit building we manage was placed in service last week. Because it may be difficult to meet the minimum set-aside this year, we’re wondering whether the owner can wait until next year to begin claiming its tax credits if the set-aside isn’t met this year. Can the owner wait, even though the building was placed in service this year?

A Yes. An owner can choose to begin claiming its credits either in the taxable year the building is placed in service or in the following year. In fact, if a building doesn’t meet its minimum set-aside in the first year, it’s not a qualified low-income building that the owner can claim credits for that year. Instead, the owner must wait until the following year to claim credits, assuming the building meets its set-aside then. If the set-aside isn’t met by the end of that year, the owner must forfeit its credits.

The owner of your building must commit to its decision to  claim credits next year by checking a box on Item 10(a) of the building's IRS Form 8609. Once made, this election is irrevocable. You should communicate with the owner throughout the year to make sure you know when the owner plans to claim credits.

In January, the IRS issued guidance extending deadlines and providing compliance accommodations due to the COVID-19 pandemic [IRS Notice 2022-05]. However, accommodations provided in the notice for first-year occupancy obligations or an additional six months to meet first-year occupancy obligations wouldn’t apply in your case because your site was just placed in service and the close of the first year would fall in 2023. The guidance says that if the close of the first year of the credit period with respect to a building is on or after April 1, 2020, and on or before Dec. 31, 2022, then the qualified basis for the building for the first year of the credit period is calculated by taking into account any increase in the number of low-income units by the close of the six-month period following the close of that first year.