Credit Limitations
Regardless of the result of these computations, the credit cannot exceed the amount allocated by
the state agency. For example, suppose a project cost $100,000 for land, $400,000 for an existing
building that was most recently placed in service more than 10 years ago, and $1,000,000 for
rehabilitation; also suppose that the applicable percentages are 8.5% and 3.5%, that the project
will be 80% low income, that there are no tax-exempt bonds or below market federal loans, and that
the state agency awarded $70,000 per year of credits. The credits are computed as follows -- (1) the
cost of the land is not eligible for credits; (2) the maximum annual credit for the purchase of the
building is $400,000 times 80% times 3.5%, or $11,200; (3) the maximum annual credit for the
rehabilitation is $1,000,000 times 80% times 8.5%, or $68,000. The total maximum annual credits,
$79,200, is more than the amount of credits awarded by the state. As a result, the project is
limited to $70,000 of credits per year.
The credits are not provided in a lump sum but instead are claimed in equal amounts over a 10
year "credit period" (many projects claim credits over 11 years, due to the rules governing how
many credits can be claimed in the first year of the credit period). Thus, the $70,000 of annual
credits described in the illustration will yield a total of $700,000 of credits over the
credit period.