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Section 424 provides for a low-income housing credit in
connection with units or buildings that are part of a low-income
housing project. Sec. 42(a), (c)(2). Although section 42 is
detailed and complex, generally, to qualify as a low-income
housing project, a certain percentage of residential units must
be both rent restricted and occupied by tenants whose income is a
certain percentage less than the median gross income of the
geographical area. Sec. 42(g)(1). With certain limited
exceptions not pertinent here, a unit will not qualify as a low-
income unit if it is occupied by students. Sec. 42(i)(3)(B)(i),
(D).
Section 42 provides for the recapture of “excess” low-income
housing credits if at the end of any tax year the qualified basis
of a low-income housing project building is less than that
building’s qualified basis as of the close of the preceding
taxable year. Sec. 42(j)(1) and (2). Very generally, qualified
basis is the portion of the building’s acquisition cost allocable
to low-income units. Recapture is therefore triggered if at the
end of any year during the compliance period (a period of 15 years
beginning usually when the property is placed in service), the
number or size of the units set aside for low-income tenants
4 Unless otherwise indicated, all section references are to
the Internal Revenue Code as amended and in effect for the
periods under consideration, and all Rule references are to the
Tax Court Rules of Practice and Procedure.
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Last modified: May 25, 2011