PHFA Issues Draft 2011 Qualified Allocation Plan
McKonly & Asbury to Present “Tax Credits 101” at Homes Within Reach Seminar

The 10% Test – It’s All or Nothing

Calculator The 10% Test deadline for projects that received 2009 low-income housing tax credits in Pennsylvania is quickly approaching. These projects have until November 2, 2010 to incur 10% of their reasonably expected basis; and until November 11, 2010, to submit the required information to the Pennsylvania Housing Finance Agency. This is an important test because failure to satisfy it can cause a project to lose its tax credits.

Generally, a project must be placed in service in the year that the low-income housing tax credits are awarded by the state housing finance agency (in Pennsylvania, this is PHFA). A carryover allocation can extend the placed in service date to the end of the second calendar year after the year that a carryover allocation is made.  In order to obtain the extended time for placing a project in service, the project must receive a valid carryover allocation agreement and satisfy the 10% Test timely. 

In order to meet the 10% Test for 2009 credits, a project must incur 10% of the reasonably expected basis by November 2, 2010. Reasonably expected basis is the estimated land and all depreciable property (not just basis eligible property) expected to be part of the project. Projects should already be planning how they are going to meet the test. One issue to keep in mind is that including a portion of the developer’s fees will require certain documentation. Another issue is that purchasing and storing materials prior to the commencement of construction will require advanced planning and appropriate documentation.

McKonly & Asbury is a leader in accounting for affordable housing projects in Pennsylvania. IRS and PHFA regulations require specialized knowledge when preparing a 10% Test. This test is critical in the tax credit process and it is important to work with someone who has the experience and expertise to ensure that your Test is accurate and your credits are not lost. The M&A Team has the audit and tax expertise and experience needed to complete an accurate 10% Test. For more information, please contact Elizabeth Brooks at ebrooks@macpas.com.

The information presented in this post is intended solely for informational purposes and should not be construed as accounting advice from McKonly & Asbury, LLP.

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