General business tax credits provide incentives for business activities beneficial to the American public or the economy in general. Owners of rental buildings in low-income housing projects may qualify for the low-income housing credit, which is part of the general business tax credit, using Form 8586 to calculate the amount of the credit.
The purpose of Form 8586
Form 8586 summarizes credits for qualifying buildings that provide low-income housing. Individual taxpayers are not required to complete Form 8586. Instead, the form is used by pass-through entities—such as partnerships, S corporations, estates, and trusts—that cannot originate a claim for the low-income housing credit elsewhere. Pass-through entities are business structures created to reduce or avoid the effects of double taxation.
Applying for the low-income housing credit
Form 8609 is used to certify a building qualifying for the low-income tax credit, as well as allocate the amount of the credit, which usually is spread over a 10-year period, either using Form 8586 or Form 3800. If you have a multi-building project, each building requires its own Form 8609. Credit allocations are made by housing credit agencies at the state or municipal level.
Conditions for recapture of the credit
The building owner must file Form 8609-A annually for 15 years. And, the building must continue to meet certification requirements. If not, the owner may have to recapture a portion of the credit allocation using Form 8611, Recapture of Low-Income Housing Credit. Recapture refers to adding back income that a credit previously reduced.
Reporting the low-income housing credit on Form 3800
Form 3800, the General Business Credit, reports the Employer Identification Number of a pass-through entity and the amount of your credit allocation, if you have completed Form 8586 to establish your claim.
If you are an individual taxpayer and not an owner of a pass-through entity, you can report the low-income credit directly on Form 3800 without an EIN or completing form 8586.
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