IRS Clarifies 4% Floor Ruling for LIHTC

AAFCPAs would like to make clients who engage in Affordable Housing projects aware of recent IRS Revenue Rulings 2021-20 and 2021-43, which aims to clarify the eligibility of Low-Income Housing Tax Credit (LIHTC) projects to qualify for the new 4% floor ruling.  The IRS has published three situations listed below:

Situation 1

A project is financed with a 2020 issued exempt facility bond.  The project will make multiple draws on the bond throughout the construction period.  In 2020, the borrower drew an amount in excess of $50,000 or 5% of the issue price. In subsequent years the borrower drew down the remaining funds.

Question: Does the minimum 4% floor apply to the building which is financed in part with a draw-down exempt facility bond issue that was issued in 2020 and on which one or more draw-downs are taken after December 31, 2020?

Answer: The 4% floor in this case does not apply as the bonds were issued in 2020 and more than $50,000 or 5% of the issue price was drawn down before December 31, 2020. The IRS has ruled the financing is part of a single issue under IRS code 1.150-1(c)(4)(i) and the issue date is set once the $50,000 or the 5% has been met.

Situation 2

The facts are the same as in Situation 1, however a separate post-2020 issuance of a de minimus amount of exempt facility bonds was made.  De minumus was clarified in IRS ruling 2021-43 as less than 10% of the total amount of bond obligations.

Question: Does the 4% floor apply with the post 2020 issuance?

Answer: No because less than 10% of total bond obligations was issued after December 31, 2020.

Situation 3

A project received a 2020 allocation of LIHTC and an additional de minimus allocation during 2021 or later but prior to being placed in service.

Question: Does the 4% floor apply for the additional allocation in 2021 as it pertains to acquisition credits?

Answer: No because it was only a de minimum allocation in comparison to the total allocation of LIHTC.

For Situations 2 and 3, in order to qualify for the 4% floor, more than the 10% de minimus threshold must be met.

As always, AAFCPAs will continue to monitor communications from the IRS and keep you informed as changes occur or become clarified.

If you have any questions about how these provisions affect your organization, please contact Matthew McGinnis, CPA at, 774.512.4080; or your AAFCPAs Partner.