Tax Facts

7807 / What recapture rules apply when claiming the low-income housing tax credit?

Updated: December 31, 2024 at 04:40 AM
If, at the close of any taxable year in the 15-year compliance period, the amount of the qualified basis of any building is less than the amount of such basis at the close of the preceding taxable year, part of the low-income housing credit may have to be recaptured and interest paid from the time when the recaptured credit was originally taken at the federal overpayment rate under IRC Section 6621. A decrease in qualified basis is not subject to the recapture rule to the extent the amount of the decrease does not exceed the amount of a previous increase in qualified basis for which an additional credit of ? of the applicable percentage has been taken (see Q 7804). The recaptured credit and interest are added to the taxpayer’s regularly calculated tax. No deduction may be taken for the interest paid. The amount of low-income housing credit that is recaptured is determined by subtracting from the aggregate amount of credits allowed in prior taxable years the aggregate amount of credits that would have been allowable if the aggregate credits allowable for the entire compliance period were allowed ratably over 15 years.1 Temporary relief may be granted for buildings located in federally declared disaster areas.2


Generally, the qualified basis will change if the applicable fraction of low-income housing units or floor space changes or if the property ceases to qualify as low-income housing. However, if there is a de minimis change to the floor space fraction and the property continues to be low-income housing following the change, no recapture results.3

A disposition of the building (or interest therein) beyond the 15-year compliance period does not result in recapture of the low-income housing tax credit. A disposition within the 15-year compliance period will result in recapture, unless the taxpayer posts a bond and the building is reasonably expected to qualify as low-income housing throughout the remainder of the 15-year compliance period.4

A partnership that has 35 or more partners may make an irrevocable election to have the partnership treated as the taxpayer to whom the credit was allowable. Two spouses (and their estates) are treated as one partner for this purpose. If the election is made, recapture is allocated to the partners in the same manner as the partnership’s taxable income is allocated for the year in which recapture occurs.5 No change of ownership will be deemed to have occurred with respect to a partnership that has made the election if within a 12-month period at least 50 percent
(in value) of the original ownership remains unchanged.6





1.  IRC § 42(j).

2.  Rev. Proc. 95-28, 1995-1 CB 704.

3.  IRC § 42(j)(4)(F).

4.  IRC § 42(j)(6).

5.  IRC § 42(j)(5).

6.  H.R. Conf. Rep. No. 99-841 (TRA 86), reprinted in 1986-3 CB (vol. 4) 96.


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