LIHTC eligible basis and the 130% basis boost, line by line

Every LIHTC credit calculation runs through three numbers: eligible basis, the applicable fraction, and the applicable percentage. This guide covers the first two and the boost. The credit estimator applies all of it.

The formula

Step	Rule	Code
Eligible basis	Adjusted basis of the building at the close of the first year of the credit period	42(d)(1)
Less federal grants	Costs financed with federally funded grants are excluded	42(d)(5)(A)
Boost	130% in a designated QCT or DDA, or where the state designates the building	42(d)(5)(B)
Applicable fraction	Lesser of the unit fraction and the floor space fraction	42(c)(1)
Qualified basis	Eligible basis x applicable fraction	42(c)(1)(A)
Annual credit	Qualified basis x applicable percentage, for 10 years	42(a), 42(f)

What goes in, what stays out

Eligible basis starts from the building’s depreciable basis, so the question for each cost line is whether it’s capitalized into the residential building (or into property used in common areas or provided as comparable amenities to all tenants under 42(d)(4)(B)).

Usually in eligible basis	Usually out
Hard construction costs of the residential building	Land and land carrying costs
Architecture, engineering, permits, impact fees that attach to the building	Permanent loan fees and costs
Construction period interest and construction loan fees (capitalized)	Syndication, offering and tax opinion costs for the equity
Developer fee, to the extent reasonable and attributable to depreciable costs	Operating and replacement reserves, lease-up reserves
Community rooms, laundry, fitness and similar amenities available to all tenants without a separate fee	Commercial space (unless a qualifying community service facility)
Site work that is part of the building (some is land improvement, a judgment call)	Costs paid with federal grants
Furniture, fixtures and equipment for residential and common areas	Upgrades to market-rate units above low-income unit quality, if you elect under 42(d)(3)(B)

Developer fee and site work are where cost certifiers and IRS examiners disagree most. Allocate the developer fee across eligible and ineligible costs in proportion, and support site work allocation with the engineer’s breakdown.

Community service facilities

In a QCT, eligible basis can include property used throughout the year to provide a community service facility designed to serve primarily people at or below 60% of AMI. The added basis is capped at 25% of the first $15,000,000 of the project’s eligible basis plus 10% of the excess (42(d)(4)(C)). On a $40,000,000 project that’s 25% x 15,000,000 + 10% x 25,000,000 = $6,250,000 of possible added basis.

The 130% boost

42(d)(5)(B) gives three paths:

Path	Who designates	Test	Available to 4% bond deals?
Qualified census tract	HUD	50% or more of households under 60% of AMGI, or poverty rate of 25% or more; designated tracts can’t exceed 20% of a metro area’s population	Yes
Difficult development area	HUD	High construction, land and utility costs relative to AMGI; capped at 20% of population; includes Small Area DDAs by ZIP code in metros	Yes
State designation	State housing credit agency	The agency finds the building needs the boost to be financially feasible	No. 42(d)(5)(B)(v) excludes buildings whose credits come from 42(h)(4) bond financing

For new buildings the boost multiplies eligible basis. For existing buildings it multiplies only the rehabilitation expenditures under 42(e), not the acquisition cost.

HUD’s 2027 designations were published October 6, 2026 (91 FR 63573) and replace the 2026 lists (90 FR 46904). HUD’s notices also say which year’s list applies to a given building, generally keyed to when the complete application is submitted to the agency (or for bond deals, the bond application) and to whether the allocation or bonds follow within a set period. Read the “application of designations” section of the notice for your year before relying on a tract that is coming off the list. Look up any address.

A worked example

Assumptions only: new construction, 100 units of which 90 are low-income; low-income units total 76,500 square feet of 90,000 residential square feet. Depreciable residential cost $30,000,000, including a $500,000 HOME grant that paid for part of the hard costs. Site in a 2027 DDA. 9% deal.

Line	Math	Amount
Depreciable residential cost		$30,000,000
Less federal grant-financed costs		($500,000)
Eligible basis		$29,500,000
Boosted eligible basis	x 130%	$38,350,000
Unit fraction	90 / 100	90.0%
Floor space fraction	76,500 / 90,000	85.0%
Applicable fraction (lesser)		85.0%
Qualified basis	38,350,000 x 85%	$32,597,500
Annual credit at 9%		$2,933,775
Ten-year credits		$29,337,750

Two lessons. The floor space fraction controlled, because the market units were larger, so the 10 market units cost more credit than their count suggests. And structuring the HOME money as a loan rather than a grant would have kept $500,000 in basis, or $650,000 after the boost, worth $497,250 of 10-year credits (650,000 x 85% x 9% x 10).

Acquisition basis for existing buildings

An existing building’s acquisition cost can be eligible basis (at the 4% rate) only if:

• the building wasn’t placed in service by anyone in the 10 years before acquisition, unless a waiver applies. Federally or state-assisted buildings (Section 8, 221(d)(3), 221(d)(4), 236, USDA 515 and similar) are exempt from the 10-year rule (42(d)(6)); and
• the taxpayer also does qualifying rehab. Rehab expenditures during a 24-month period must be the greater of 20% of the building’s adjusted basis or a per-low-income-unit minimum (42(e)(3)), which is $8,700 for 2026 (Rev. Proc. 2025-32 sec. 4.07).

The rehab is its own “new building” for credit purposes and can get the 9% rate if not federally subsidized and the agency allocates 9% credit.

Where basis questions get decided

The first-year eligible basis goes on Form 8609 Part II, line 7, and the boost percentage the agency applied goes on Part I, line 3b (Form 8609). The final cost certification, usually audited by a CPA, is what the agency relies on to issue the 8609, so the line-by-line allocation above has to be supportable from the general ledger. See Forms 8609, 8609-A, 8823, 8586 and 8611.

If the boost decides whether the deal works, have the Janover Capital desk run the debt and equity at both basis levels.