For buildings under LIHTC, which calculation is critical when determining the financial viability of the rental units?

The applicable fraction is crucial in determining the financial viability of rental units under the Low-Income Housing Tax Credit (LIHTC) program. The applicable fraction represents the proportion of a building that is designated for low-income tenants compared to the total number of units. This fraction directly influences the amount of tax credits the developer can claim.

If the applicable fraction is too low, it may not generate sufficient credits to make the project financially viable. Conversely, a properly calculated applicable fraction ensures the maximum benefits and incentives under the LIHTC program while aligning with the regulations aimed at maintaining affordable housing. Understanding this concept is essential for developers and investors looking to leverage the tax credit system effectively.

While occupancy rates, total square footage, and historical rental prices are important factors in assessing a property's performance and marketability, they do not directly influence the financial framework established by the LIHTC program in the same way that the applicable fraction does.