A Guide to LIHTC Compliance and Reporting Essentials

The Low-Income Housing Tax Credit (LIHTC) program is a crucial element in promoting affordable housing for low-income tenants across the United States.

  

For the LIHTC program to work properly without failing, ensuring compliance and reporting requirements is crucial to maintaining the program’s integrity. But, this job is easier said than done.  

 

This blog provides an overview of LIHTC compliance requirements and reporting needs so that readers can understand how critical it is to maintain the achievements made under this scheme.

Overview of the LIHTC Program 

The LIHTC program, enacted by the Tax Reform Act of 1986, was designed to give developers and property owners who construct or renovate low-income rental units tax credits. 

The federal government’s program is supported by the Internal Revenue Service (IRS) to satisfy the demand for affordable housing, among other roles. This tax program for development serves as a pull factor toward initiating affordable housing projects, which otherwise would not be financially justified.

Key Compliance Requirements 

It is crucial to adhere to LIHTC regulations to ensure that properties continue offering affordable housing to people who qualify as low-income for no less than 15 to 30 years and beyond. If they are not compliant, they are subject to penalties, including recapturing some of the tax credits.

 

Here are the key compliance requirements:

 

• Tenant Eligibility: Verify tenant income at move-in using third-party documentation like pay stubs and tax returns. Maintain thorough records to ensure only eligible tenants benefit. 

• Rent Limits: Do not have your rent limits exceed the limits as set by the IRS; this is based on the Area Median Income (AMI). Adjust rents every year depending on updates in AMI while also looking at utility allowances.    

• Habitability Standards: When it comes to habitability standards, ensure they do not go below the bare minimum but rather adequately satisfy HUD’s UPCS. Inspections should be carried out regularly to monitor safety levels and compliance for improved residential conditions. 

• Unit Mix Requirements: Maintain the specified mix of low-income and market-rate units outlined in the original agreement. Monitor and report on unit mix regularly. 

• Extended Use Period: Continue to meet compliance requirements during the extended use period, which lasts 15 years after the initial compliance period. 

Reporting Requirements 

LIHTC compliance necessitates accurate and timely reporting. Owners and property managers must meet specified reporting requirements to ensure program integrity. The major reporting requirements consist of:

 

• Annual Certification: Submit a certification to state housing agencies representing compliance with LIHTC requirements annually. The certification package includes detailed tenant income records, rent rolls, and inspection reports.  

• Record Keeping: You must keep tenant files, income proofs, and rent records for at least six years following the period they were due. Establish solid record-keeping systems that will allow conformity to be maintained. 

• Occupancy Reports: Regular reports on occupancy that include details about tenant demographics, income levels, and rental amounts should be submitted to state housing agencies. 

• Monitoring compliance: State housing agencies sometimes perform compliance monitoring, meaning you need to get ready for periodic visits to check your files, inspect the physical condition of your properties, or talk to staff. 

• Financial Reporting: Submit financial reports annually to state housing agencies. The reports should detail the property’s financial performance and utilization of tax credits for affordable housing. 

Role of CPAs in LIHTC Compliance 

Ensuring LIHTC compliance is a crucial responsibility of Certified Public Accountants (CPAs). They prepare financial statements, conduct audits, and provide exact reporting. This helps them navigate tax regulations’ complexities and detect non-compliance threats in advance. Their participation guarantees that financial practices are consistent with regulations, thereby raising any inconsistencies whenever they occur. 

Best Practices for Ensuring Compliance 

Maintaining compliance with the LIHTC and avoiding risks requires property managers and owners to stick to best practices.

 

Property managers and staff should strictly follow LIHTC regulations and be regularly trained about them. Consequently, more knowledge and skills can be instilled in the staff through regular in-house training forums and participation in external workshops and seminars.

  

In addition, LIHTC software with strong recording systems, like digitally based property control technologies, will help make compliance procedures easier. Maintaining properties by conducting inspections and carrying out repairs promptly keeps them habitable and in good condition. 

 

To achieve long-term positive outcomes, it is vital to continually monitor and confirm compliance with the low-income housing tax credit project’s applicable requirements. 

Conclusion 

It is critical to comply with and follow reporting requirements for tax credit compliance. Understanding what qualifies as an occupant, what rent is charged, and what is meant by habitable rooms enables managers and owners to adhere to this law.

 

Consistent training, proper LIHTC paperwork, and preventative maintenance are necessary to remain compliant and maintain the program’s goals. CPAs are crucial for supporting these compliance efforts and ensuring that housing for low-income tenants remains effective.

 

By abiding by the best practices and implementing program integrity measures, stakeholders can ensure the success and sustainability of the LIHTC program, making it an indispensable affordable housing resource throughout the U.S.