IRS Form 8609: Low-Income Housing Credit Explained

IRS Form 8609, the Low-Income Housing Credit Allocation and Certification, is for building owners in the Low-Income Housing Tax Credit (LIHTC) program. This federal initiative offers a tax credit for owners of qualified low-income rental buildings. The form is used by a state or local Housing Finance Agency (HFA) to allocate the tax credit and by the building owner to certify the project meets all qualifications for the first year.

The HFA issues the form to the building owner, who then completes their portion, making several elections about the project. A separate Form 8609 must be completed for each building in a housing project to ensure it independently satisfies program requirements before a tax credit can be claimed.

Information Required for Form 8609

To complete Form 8609, a building owner must gather key information. The process begins with the Building Identification Number (BIN), a unique identifier assigned by the HFA to each building. This number is used for tracking by the HFA and IRS throughout the 15-year compliance period and is pre-filled by the agency in Part I.

A central concept is the “placed-in-service date,” which is when a building is ready and available for its intended use. For new construction, this is the date the first unit is certified as ready for occupancy. This date marks the beginning of the credit and compliance periods, and the owner certifies this date on the form, which dictates the first tax year the credit can be claimed.

The credit calculation hinges on the building’s “eligible basis,” which includes the costs of construction or acquisition and rehabilitation for the low-income units. Costs for land and non-residential rental property are excluded. For projects in designated high-cost areas, the eligible basis may be increased, a determination made by the HFA.

This eligible basis is multiplied by the “applicable fraction” to determine the qualified basis. The applicable fraction is the smaller of two ratios: the number of qualified low-income units to total residential units, or the total floor space of low-income units to the total floor space of all residential units. The owner must use the lesser of these two fractions.

Owners must make an irrevocable election on Form 8609 for the minimum set-aside test. The primary options are the 20-50 test (at least 20% of units for tenants at or below 50% of Area Median Income, or AMI) and the 40-60 test (at least 40% of units for tenants at or below 60% of AMI). A third option is the Average Income Test, where at least 40% of units must be rent-restricted and their designated income limits must average 60% or less of AMI. This test permits a project to balance units for tenants at various income levels, such as 70% or 80% of AMI, with units restricted to lower incomes.

The “applicable credit percentage” is determined by the HFA and entered in Part I. For new construction and substantial rehabilitation projects not receiving other federal subsidies, this is the 9% credit. For buildings financed with tax-exempt bonds or for the acquisition cost of existing buildings, a 4% credit applies.

Completing Form 8609

Completing Form 8609 is a two-stage process involving the state HFA and the building owner. The HFA completes Part I, “Allocation of Credit,” which contains the official allocation details. This includes the building’s address, BIN, allocation date, maximum credit amount, and the applicable credit percentage.

The building owner is responsible for Part II, “First-Year Certification,” where they attest that the building meets all requirements of the Internal Revenue Code. The owner must enter the date the building was placed in service, which establishes the start of the 10-year credit period.

In Part II, the owner also calculates the qualified basis by reporting the eligible basis and the applicable fraction, then multiplying the two figures. This section includes other irrevocable elections, like starting the credit period in the year after the building is placed in service. This option provides flexibility if the building is not fully leased in its first year.

Part III, “Statement of Noncompliance,” is not completed during the initial certification and is used in later years to report if the building has fallen out of compliance. The owner’s signature on Part II certifies under penalty of perjury that the information is correct and they will comply with all program requirements.

Filing and Post-Filing Procedures

After completing Part II, the owner must file the original Form 8609 with their federal income tax return for the first year the credit is claimed. This is a one-time submission attached to the owner’s primary tax return, such as a Form 1040, 1120, or 1065.

For the next 14 years, the owner must attach a copy of the completed Form 8609 to their tax return each year the credit is claimed. Owners must retain the original form and supporting documents for the full 15-year compliance period, as the IRS may request it during an audit.

Information from Form 8609 is used to complete Form 8586, Low-Income Housing Credit, which is filed annually to calculate and claim the credit. Form 8609 establishes the credit parameters, while Form 8586 uses that data to compute the credit.

Owners must also submit a copy of the completed Form 8609 to the state HFA that issued it. This dual reporting to the IRS and the HFA is a standard procedure.

Ongoing Compliance and Recapture

Filing Form 8609 begins a 15-year compliance period starting on the first day of the first taxable year of the credit period. During this period, the building must continuously satisfy the elected minimum set-aside test, and low-income units must remain rent-restricted and suitable for habitation.

To monitor compliance, owners perform an annual certification with the state HFA, not the IRS. Owners file Form 8609-A, Annual Statement for Low-Income Housing Credit, each year of the compliance period to affirm the building still meets all requirements. The HFA reviews these forms and reports any noncompliance to the IRS using Form 8823, Low-Income Housing Credit Agencies Report of Noncompliance or Building Disposition.

Failure to maintain compliance can result in credit recapture. If a building’s qualified basis decreases, a portion of the credits claimed in previous years may be recaptured by the IRS. The owner must pay back a percentage of the tax benefits received, and the recapture amount is calculated on Form 8611, Recapture of Low-Income Housing Credit, and filed with the tax return for the year the noncompliance occurred.

Recapture can be avoided during a sale if the owner posts a bond with the IRS using Form 8693, Low-Income Housing Credit Disposition Bond. The bond ensures the IRS can recover the credit if the new owner fails to maintain compliance, which allows the property to be sold without triggering recapture for the seller if the new owner upholds the program’s obligations.