Low Income Housing Credit

[WhiteOleander]

I have a client who has invested as a limited partner in the Boston Capital partnership investments.

He gets K-1's. Usually, it shows a loss on the rental investments. But, also credits for the low income housing credits.

As I understand it, the credits can only be applied against the tax figured on passive income each year. Since this is his only source of passive income, and it is a loss, he can't use any of the LIHC.. It must be carried forward. And if he sells out, he will lose all the carryforward credits.

He insists his "friend" has taken the credit. I asked him to let me speak to his friend and if I can see what was done, I might be able to concur or explain why I think it is wrong.

Just want to make sure I have these rules right.

[Donanita]

Lhc

I have a client that is heavy into Boston Capital LHC and when I enter the info from the k-1 into my tax program software it calcuates the amt of the credit they are able to take.If you have losses and no income the losses are carried to a year in which they have income and the year of a final k-1 the losses are taken.

[WhiteOleander]

Thanks for the reply.

But, I'm not talking about the losses. I'm talking about the Low Income Housing CREDIT. It is a tax credit against tax on passive income.

[Unregistered]

credit

If you fill out Form 8582-CR and Form 8586, you should get the credit, even if you have no passive income.

[Bees Knees]

Exception for Low Income Housing Credit

The passive activity loss limitations under Section 469 apply to both passive losses and passive activity credits. Section 469(i) provides an exception for a taxpayer who is an active participant in a rental real estate activity in which the taxpayer has AGI under $100,000. Under these rules, up to $25,000 of losses are deductible, or the loss equivalent of the passive activity credit is allowed, even if the taxpayer has no other passive income to offset the loss or allow the credit.

However, when it comes to the Low Income Housing Credit under Section 42, Section 469(i)(3)(D) says that the AGI phase-out starting at $100,000 does not apply to the Low Income Housing Credit.

Also, Section 469(i)(6)(B) says for purposes of the Low Income Housing Credit, the active participation requirement for purposes of allowing up to $25,000 of loss (or equivalent credit) does not apply.

Also, Section 469(k)(1) says the Publicly Traded Limited Partnership rules where you can only offset losses (and credits) against passive income from the same Publicly Traded Limited Partnership does not apply for purposes of the Low Income Housing Credit.

So, for purposes of a limited partnership passing through the Low Income Housing Credit to a limited partner, the normal passive loss rules do not apply. The limited partner is treated the same as an active participant in a rental real estate activity without the $100,000 AGI phase-out rules and without the Publicly Traded Limited Partnership rules.

[WhiteOleander]

Thanks Bees Knees.

So, my client can use his credits because the regular rules for passive activity and or credits does not apply to the Low Income Housing Credit?

I think that's how I read your post.

[Bees Knees]

That is correct. The Low Income Housing Credit is allowed even though the passive losses are suspended.