IRS Allocates Unused National Pool LIHTCs

Each year the IRS allocates a certain amount of Low-Income Housing Tax Credits to each state using a formula allocation method, which is based on a state’s population, and is established in Section 42 of the Internal Revenue Code. In addition to the credits allocated by this formula method, each year, states are also permitted to allocate to the state housing finance agency (HFA) LIHTCs that were unused by recipients of tax credits allocated in a prior year, and LIHTCs from the prior calendar year that were not previously allocated by the HFA.

However, tax credits that aren’t allocated by a state HFA within two years must be returned by the HFA to the IRS, which then places them in a national pool of unused tax credits. The IRS then reallocates these national pool credits to state HFAs that fully utilized their entire LIHTC allocation for the prior calendar year.

The IRS recently issued Revenue Procedure 2014-52, which provides for the reallocation of $2.59 million of unused national pool LIHTCs. The national pool credits were divided among 35 states and Puerto Rico, with California receiving the largest allocation, of $364,756.