A 15-year compliance period
Credit properties must meet income and rent limits for a 15-year compliance period, plus an extended use period in the regulatory agreement. A violation can trigger recapture of credits already claimed.
Industry tax guide
Affordable housing tax and accounting
Tax planning that keeps low-income housing credits, depreciation and investor reporting working together.
Affordable housing owners and developers work inside a regulated, capital-intensive model: a credit period that lasts years, investor partners who expect clean K-1s, and properties that need steady capital work to stay in compliance.
The tax savings come from getting the basis right at the start and keeping it right. What goes into eligible basis, how components are depreciated, and whether later work is a repair or an improvement all change the credit and the deductions investors receive.
Compared with a general business
What makes taxes different for affordable housing
Annual credit filings
The state agency issues Form 8609 when the building is placed in service, and the owner files Form 8609-A every year with the return to report continued compliance.
Basis rules of its own
Land never enters eligible basis, and federal grants used for the building reduce it. Every cost decision changes the credit, not only depreciation.
Investor-driven partnerships
Credits and losses are allocated almost entirely to the investor partner, so capital accounts, minimum gain and the year-15 exit need tax work from the first year.
The rules in detail
Tax rules for affordable housing
Low-income housing credit (Section 42)
The credit is claimed over ten years on the qualified basis of low-income units and depends on eligible basis, the applicable fraction and ongoing income and rent tests. The 2025 tax law expanded state credit allocations and eased the bond-financing test for projects financed with bonds issued after 2025, so more projects can qualify for the 4% credit.
Cost segregation inside a credit project
Separating personal property and land improvements from the building speeds up depreciation, but it also moves cost out of the building categories that make up eligible basis. A study for a credit project has to model both effects before the numbers are used on a return.
The 45L credit ended on June 30, 2026
The new energy efficient home credit no longer applies to units acquired after June 30, 2026. Units that were certified and leased or sold by that date can still be claimed on the return for that year with Form 8908.
Planning moves
Ways to save tax in affordable housing
Capture every cost that belongs in eligible basis
Soft costs, the developer fee and site work that qualify are documented so the credit is as large as the rules allow.
Use bond financing under the new 25% test
For projects financed with bonds issued after 2025, the bond-financing threshold for the 4% credit dropped, which can free up volume cap and improve feasibility.
Accelerate depreciation where it does not cost credits
Cost segregation on components outside eligible basis, or at acquisition of an existing property, adds deductions without reducing the credit.
Deduct capital needs work as repairs
Routine replacements identified under the tangible property rules keep upkeep out of the asset ledger and in current deductions.
Plan the year-15 exit early
Right of first refusal, qualified contract and sale structure decide how much tax the general partner and investor pay at exit.
Claim local and state incentives
Property tax abatements, PILOT agreements and state housing credits combine with the federal credit to support the project's numbers.
Working with OICPA
How we help
Classify the building correctly from day one
A cost segregation study, coordinated with your credit consultant, sets the depreciation schedule investors rely on for the life of the partnership.
Cost Segregation CoordinationDeduct repairs instead of capitalizing them
Unit turns, roof patches and HVAC work often qualify as repairs under the tangible property rules, which keeps routine upkeep out of the asset ledger.
Property-Level AccountingInvestor-ready K-1s on time
Partnership returns that tie to the credit compliance file, so syndicators and investors receive consistent numbers every year.
Real Estate Tax PlanningSee the numbers before you build
Model first-year depreciation from a cost segregation study before you commit to the scope of a renovation.
Cost Segregation Savings EstimatorBookkeeping and reporting
The accounting behind the tax work
Compare operating cash needs with upcoming repairs and owner reporting deadlines before distributions are considered.
The operating challenge
Restricted reserves, operating accounts, and development costs need separate tracking so a healthy bank balance does not obscure a funding shortfall.
The records that matter
Property-level ledgers, reserve activity, funding agreements, and capital expenditure schedules give the review a practical starting point. We identify missing information before recommending changes.
What you can expect
- A prioritized review of the industry-specific accounting issues above
- A tailored reporting and document checklist based on your operating records
- An agreed action plan connecting financial reporting, tax deadlines, and specialist coordination
Frequently asked questions
Can an affordable housing project use cost segregation?
Yes. It works the same way as for any rental property, but the study should be reviewed against the eligible basis calculation so faster depreciation does not reduce the credit more than it is worth.
Is the 45L credit still available for our units?
Only for units acquired, by sale or lease, on or before June 30, 2026. Those units can still be claimed on that year's return if they meet the energy certification.
Do you work with our syndicator and credit consultant?
Yes. We prepare the partnership return and depreciation schedules and coordinate with the credit consultant and investor's asset manager so the compliance file and the tax return match.
Related articles
References
- 26 U.S. Code § 42: Low-income housing creditLegal Information Institute, Cornell Law School
- About Form 8586, Low-Income Housing CreditInternal Revenue Service
- About Form 8908, Energy Efficient Home CreditInternal Revenue Service
- Tangible property final regulationsInternal Revenue Service
Rules reflect federal tax law as of November 2026.