Under what circumstances can tax credits be recaptured in LIHTC properties?

The recapture of tax credits in Low-Income Housing Tax Credit (LIHTC) properties specifically occurs when there is a failure to comply with the established rules, including maintaining income limits and ensuring tenant qualifications. The LIHTC program is designed to provide affordable housing, and adherence to its regulations is crucial for sustaining the benefits granted by the credits.

If a property does not meet these compliance requirements — for instance, if the income limits are exceeded or tenants do not qualify based on the program’s criteria — the Internal Revenue Service (IRS) can reclaim the tax credits originally awarded. This mechanism is intended to enforce compliance and ensure that the properties remain accessible to low-income tenants, which is the cornerstone of the LIHTC initiative.

Other circumstances mentioned, such as selling the property, undertaking renovations, or significant market rate increases, do not inherently trigger recapture. For example, a sale to a new owner does not automatically lead to recapture, as long as the new owner continues to adhere to the LIHTC compliance requirements. Renovations can also occur without jeopardizing the tax credits if the property remains compliant during and after the work. Lastly, while market rate increases may impact affordability, they do not directly constitute a violation of the LIHT