Form 8586: Low Income Housing Credit

Form 8586 is an Internal Revenue Service (IRS) document used by owners of qualified residential rental buildings in low-income housing projects. It helps them calculate the amount of the Low-Income Housing Credit (LIHC), a tax incentive program offered by the government. This credit is claimed over a 10-year period and is considered part of the general business credit.

What's the Purpose of Form 8586?

The primary purpose of Form 8586 is to:

A. Calculate the LIHC amount: Owners can use the form to determine the exact amount of tax credit they're eligible for based on their qualified low-income housing project.

B. Report the credit: Once calculated, the form allows owners to report the LIHC on their tax return.

Who Needs to Use Form 8586?

A. Required for Pass-Through Entities: Partnerships, S corporations, estates, and trusts that own qualified low-income housing and cannot claim the credit elsewhere must use Form 8586.

B. Not Required for Others: Individual taxpayers and entities other than those mentioned above, whose only source of the LIHC comes from pass-through entities, can report the credit directly on Form 3800, General Business Credit.

Key Points To Remember About the Low-Income Housing Credit

Eligibility: Only applies to new qualified low-income housing buildings placed in service after 1986.

Requirements: Buildings must meet specific minimum set-aside tests, ensuring a certain percentage of units are rented to individuals with income thresholds set by the area's median gross income. There are two main tests:

  1. 20-50 Test: At least 20% of units are rent-restricted for those earning less than 50% of the area median gross income.
  2. 40-60 Test: At least 40% of units are rent-restricted for those earning less than 60% of the area median gross income.

Credit Allocation: Except for certain tax-exempt bond financed buildings, projects generally require an allocation from a state or local housing credit agency. This allocation limits the maximum credit amount claimable.

Credit Period: The LIHC can be claimed over a 10-year period, following the year the building is placed in service.

Do I need to file Form 8586 if I own a low-income housing property?

Not necessarily. Individual taxpayers who receive the credit solely through pass-through entities report it on Form 3800. However, partnerships, S corporations, estates, and trusts might need to file Form 8586 if they can't claim the credit elsewhere.

How do I qualify for the Low-Income Housing Credit?

Your building must be a qualified low-income rental property within a designated project meeting the minimum set-aside tests. You'll also need an allocation from your state or local housing credit agency.

Who qualifies for the Low-Income Housing Credit?

The credit is available to owners of qualified low-income buildings that meet the set-aside tests and receive allocation from a housing credit agency.

How long does the Low-Income Housing Credit last?

The credit can be claimed over a 10-year period, starting from the year the building is placed in service.

Do I need to file Form 8586 if I'm an individual taxpayer?

No, if you're an individual and your only source of the LIHC is from pass-through entities, you report it on Form 3800.

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