Under IRC Section 42, the placed-in-service date for a LIHTC building is the date the building is ready and available for its specifically assigned function. For residential rental property, that means the date the first unit in the building is certified as suitable for occupancy under state or local law, which in practice is usually the date on a certificate of occupancy issued by the local building inspector.1IRS. IRS Notice 88-1162IRS. IRC 42 Low-Income Housing Credit Audit Technique Guide, Part 3 This one date does a lot of work: it locks in the applicable credit percentage, fixes the eligible basis, and starts the clock on both the 10-year credit period and the 15-year compliance period.
A building can be placed in service before any tenants move in. The test is readiness for occupancy, not actual occupancy.1IRS. IRS Notice 88-116 For new construction, either a temporary or a final certificate of occupancy will satisfy the requirement.3PKF O’Connor Davies. The Life Cycle of Low-Income Housing Tax Credits The owner still has to be able to justify the date chosen, since the IRS retains audit authority through year 21 of the project. When a building changes hands and is occupied or ready for occupancy on the transfer date, a new placed-in-service date is generally established for the new owner.2IRS. IRC 42 Low-Income Housing Credit Audit Technique Guide, Part 3
What the Date Controls
The Credit Period and Compliance Periodh3>
Under Section 42(f)(1), the 10-year credit period begins in the taxable year the building is placed in service. The 15-year compliance period, defined in Section 42(i)(1), starts with the first year of the credit period and runs five years past the end of the credit period.4Ohio Housing Finance Agency. OHFA Compliance Manual5Novogradac. Novogradac Journal of Tax Credits6Michigan State Housing Development Authority. LIHTC Compliance Manual, Chapter 1
The Applicable Credit Percentage
Under Section 42(b)(1), the default applicable percentage is the rate prescribed by Treasury for the month the building is placed in service. A taxpayer can instead elect to lock in the rate for the month a binding agreement is entered into with the housing credit agency; the election must be made no later than the fifth day after the close of the chosen month and is irrevocable.7Cornell Law Institute. 26 U.S. Code § 42 For bond-financed projects, an analogous election allows the rate to be locked to the month the tax-exempt bonds are issued. Permanent minimum floors of 9% (for new construction and substantial rehabilitation allocated after July 30, 2008) and 4% (for buildings placed in service after December 31, 2020, financed by tax-exempt bonds issued after that date or receiving 2021-or-later allocations) reduce the volatility of the placed-in-service month.8Winthrop & Weinstine. Affordable Housing Implications of Consolidation Appropriations Act 2021
Eligible Basis
A project’s eligible basis, the pool of costs that generates the credit, is determined as of the close of the first taxable year of the credit period. Only qualifying costs that are paid or incurred by that date, and that are “fixed and determinable” under an accrual method of accounting per Notice 88-116, can be included.2IRS. IRC 42 Low-Income Housing Credit Audit Technique Guide, Part 3 Eligible costs generally include on-site construction, professional fees, construction-period financing, developer fees, common areas, and functionally related facilities. Costs that are excluded include land, off-site work, permanent loan interest, post-construction insurance and property taxes, application fees, reserves, syndication fees, and any costs expensed under IRC Section 179.9Housing New Mexico. LIHTC Fundamentals State agencies require a final cost certification at the placed-in-service date to verify what belongs in eligible basis.
The First-Year Credit and the Deferral Election
The placed-in-service date directly controls how much credit the owner can claim in year one. Under Section 42(f)(2), the first-year credit is pro-rated on a monthly basis. The owner calculates an applicable fraction for each full month the building was in service during the year, taking the lesser of the unit fraction (qualified units divided by total units) or the floor-space fraction (qualified square footage divided by total square footage). Those monthly fractions are summed and divided by 12 to produce a weighted average applicable fraction for the year.10Withum. Low-Income Housing Tax Credit Program First-Year Credit Weighted Average Calculation
A unit counts toward the monthly fraction only if it was in service for the entire month and was occupied by an income-qualified tenant as of the last day of the month.11IRS. Revenue Ruling 2004-82 So a building that receives its certificate of occupancy on March 15 does not count March; April is the first full month.3PKF O’Connor Davies. The Life Cycle of Low-Income Housing Tax Credits Any annual credit unclaimed in year one because of pro-rating is not lost; it is allowed in the 11th year of the credit period.7Cornell Law Institute. 26 U.S. Code § 42 Units that do not qualify until after the first year produce credits at one-fifteenth of the full amount per year over the compliance period rather than one-tenth per year over the credit period.4Ohio Housing Finance Agency. OHFA Compliance Manual
Owners have the option to defer the start of the credit period to the taxable year following the placed-in-service year. The election is made on line 10a of Form 8609 and is irrevocable.5Novogradac. Novogradac Journal of Tax Credits When deferral is elected, the compliance period also shifts to begin in the deferred year. Deferral is worth considering when a building is placed in service late in the year with lease-up still underway, because starting the credit period with a full calendar year of occupancy maximizes year-one credits.4Ohio Housing Finance Agency. OHFA Compliance Manual
Acquisition/Rehabilitation: Two Placed-in-Service Dates
Projects that involve buying an existing building and rehabilitating it have two distinct placed-in-service dates, each recorded on its own Form 8609.12Ohio Housing Finance Agency. Acquisition-Rehab FAQs
The acquisition placed-in-service date is the date the ownership entity acquires the building by purchase, effectively the date the deed transfers. An occupied existing building is already ready for its intended function, so it is considered placed in service on acquisition.12Ohio Housing Finance Agency. Acquisition-Rehab FAQs The rehabilitation placed-in-service date is different. Under IRC Section 42(e)(4)(A), rehabilitation expenditures are treated as a separate new building, and their placed-in-service date is the close of the 24-month period the taxpayer selects for aggregating expenditures to meet the minimum spending thresholds.2IRS. IRC 42 Low-Income Housing Credit Audit Technique Guide, Part 3 If the “substantially rehabilitated” standard is met earlier, the expenditures can be treated as placed in service before the 24-month window closes.13IRS. Rehabilitation Credit and Low-Income Housing Credit Compared
A coordination rule links the two. Under Section 42(f)(5), acquisition credits cannot be claimed in a tax year before rehabilitation credits are claimed; the 10-year credit period has to be the same for both components. If the rehab is completed in a later year than the acquisition, both sets of credits begin at the start of the rehab’s placed-in-service year.12Ohio Housing Finance Agency. Acquisition-Rehab FAQs A common compliance mistake is waiting to income-qualify existing tenants until rehab is finished, which forfeits months of acquisition credits that could otherwise have been claimed.14Tax Credit Advisor. Experts Offer Tips for Effective Compliance
When a project consists of multiple new buildings completed on different dates, each building has its own placed-in-service date, its own Building Identification Number, and its own Form 8609.15IRS. About Form 8609 The minimum set-aside is tested building by building, with the 12-month qualification clock running from each building’s own date.16Colorado Housing and Finance Authority. LIHTC Glossary of Terms
The Placement Deadline After a Carryover Allocation
Most LIHTC projects cannot be placed in service in the same year their credits are allocated. The carryover allocation mechanism under Section 42(h)(1)(E) bridges the gap, but it imposes two hard deadlines.
Within 12 months of the carryover allocation date, the owner must have incurred at least 10 percent of the project’s reasonably expected basis, an estimate of the total land and depreciable property costs expected in the development. Failing this 10 percent test can result in forfeiture of the allocation.17Novogradac. LIHTC Agencies Can Use Existing Guidance to Extend 10 Percent Test and Placed-in-Service Deadlines18MacPAS. What Is a 10% Test?
The building itself must then be placed in service by the end of the second calendar year after the carryover allocation year. A 2024 allocation, for example, must be placed in service by December 31, 2026. When construction delays threaten this deadline, developers sometimes recycle an allocation, returning the original credits and accepting a new allocation from a later year to reset the clock, though this creates administrative burden on the agency side.19Novogradac. Intricacies of the 9% LIHTC Ceiling and Forward Commitments
Disaster Extensions
For properties in a presidentially declared major disaster area, state agencies may grant up to six additional months for the 10 percent test and up to one additional calendar year for the placed-in-service deadline under Revenue Procedure 2014-49. If a building already in service is severely damaged, the agency may toll the start of the first-year credit period for up to 25 months.20IRS. Revenue Procedure 2014-49 Missing even an extended deadline results in the allocation being treated as returned to the agency on the day after the extension expires.17Novogradac. LIHTC Agencies Can Use Existing Guidance to Extend 10 Percent Test and Placed-in-Service Deadlines
The COVID-era extensions that once pushed placed-in-service deadlines out by as much as two years for 2019-2021 allocations, under Notices 2022-05 and 2022-52, have expired and are no longer available for new relief.21IRS. IRS Notice 2022-5222IRS. IRS Notice 2022-0523National Council of State Housing Agencies. IRS Notice 2021-12 Housing Credit Coronavirus Relief Guidance Extension and Expansion
Documenting the Date on Form 8609
Form 8609, “Low-Income Housing Credit Allocation and Certification,” is the document that records the placed-in-service date and enables the owner to claim credits. Part I is completed and signed by the state housing credit agency; Part II is completed by the owner, who certifies the placed-in-service date on line 5a and makes several irrevocable elections, including the year-one deferral, the minimum set-aside choice, and the multi-building project designation.24IRS. Instructions for Form 8609
The original Form 8609 must be paper-filed with the IRS and received by the extended due date of the owner’s return for the first year credits are claimed. If it does not arrive in time, the partnership cannot claim credits for that year. Under the 2015 Bipartisan Budget Act, amended returns can no longer be used to go back and pick up missed credits; the partnership must file an Administrative Adjustment Request instead, which forces the credit into the year the request is filed.3PKF O’Connor Davies. The Life Cycle of Low-Income Housing Tax Credits
State agencies typically require a placed-in-service application within a set window after the last building is placed in service, along with certificates of occupancy, contractor cost certifications, a CPA audit, and final cost breakdowns. South Carolina, for example, requires the full package within nine months of the last building’s placed-in-service date.25South Carolina State Housing Finance and Development Authority. 2025 Tax Credit Manual, Appendix E Requirements vary by state, so confirm your allocating agency’s specific documentation rules and deadlines before the date approaches.