Low Income Housing Tax Credits – Can Individual Taxpayers Claim Them?

Passive Activity Rule Limitations

The Low-Income Housing Tax Credit is generated from a passive rental real estate activity. Accordingly, individual taxpayers may be limited or prevented from claiming Low Income Housing Tax Credits under the passive activity rules unless one of the following applies:

1. The taxpayer has taxable income from this or other passive activities. The tax credit may then be utilized to offset the tax on the passive income only.
2. The taxpayer qualifies as a Real Estate Professional and materially participates in the activity. An election to group real estate activities is available to assist taxpayers with meeting material participation requirements.
         a. The HTC claimed may not exceed $25,000 plus 75% of the excess over $25,000.
3. For taxpayers who do not qualify as a Real Estate Professional, the tax credit may be utilized to offset tax liability up to an amount equal to the tax liability reduction on $25,000 of losses (limitation amount).
        a. This same limitation applies to passive activity losses available to the taxpayer. Passive activity losses and other tax credits are applied to the limitation amount prior to low-income housing tax credits.

Claiming Low-Income Housing Tax Credits

The Low-Income Housing Tax Credit may be utilized to offset regular income tax and alternative minimum tax, but not self-employment tax. Unused credits may be carried back one year and carried forward 20 years.

To learn more about how you can utilize Low-Income Housing Tax Credit for a project, contact Trent Senske, CPA or the Real Estate Team at Mahoney to assist you with your questions.