IRS Instruction 8609 – In the realm of affordable housing incentives, the Low-Income Housing Tax Credit (LIHTC) program stands out as a vital tool for developers and investors. At the heart of this program is IRS Form 8609, which handles the allocation and certification of credits for low-income rental properties. Whether you’re a state housing credit agency, a building owner, or a taxpayer navigating tax credits, understanding the instructions for Form 8609 is essential for compliance and maximizing benefits. This article breaks down the key aspects of the form’s instructions, updated as of December 2025, to help you grasp its purpose, filing requirements, and recent changes.
What Is the Low-Income Housing Tax Credit (LIHTC)?
The LIHTC program, established under Section 42 of the Internal Revenue Code, encourages the development and rehabilitation of affordable rental housing. It offers a dollar-for-dollar tax credit over a 10-year period to owners of qualified low-income buildings, followed by a 15-year compliance period to ensure ongoing affordability. Credits are allocated by state or local housing credit agencies based on a per-capita state ceiling, with at least 10% reserved for qualified nonprofit organizations. This program has been instrumental in creating millions of affordable housing units across the U.S., addressing housing needs in urban, rural, and high-cost areas.
Purpose of IRS Form 8609
Form 8609 serves two primary functions:
- Credit Allocation: Housing credit agencies use it to allocate credits to building owners for new construction, substantial rehabilitation, or acquisition of existing low-income housing projects.
- Certification: Building owners certify key information for the first year of the credit period, ensuring the project meets eligibility requirements.
A separate form is required for each building in a multi-building project. No allocation is needed if at least 50% of the building’s basis is financed with tax-exempt bonds, but certification via Form 8609 is still mandatory. The form also assigns a unique Building Identification Number (BIN) that must be used consistently for all related filings.
Who Needs to File Form 8609?
Filing responsibilities are split between housing credit agencies and building owners:
- Housing Credit Agencies: Complete and sign Part I to allocate credits. They must submit a copy with Form 8610 (Annual Low-Income Housing Credit Agencies Report) and send the original to the building owner. Agencies ensure allocations don’t exceed state limits and verify project feasibility.
- Building Owners: Complete Part II for certification and file the entire original form with the IRS by the due date of their first tax return (including extensions) that includes Form 8609-A. Owners must also file Form 8609-A annually during the 15-year compliance period and claim credits via Form 8586.
Contact your state agency for any additional submission requirements, such as providing a copy of Part II.
Step-by-Step Guide to Completing Form 8609
The form is divided into two parts. Here’s a high-level overview based on the official instructions:
Part I: Allocation of Credit (Agency-Completed)
This section documents the credit amount and project details:
- Item A: Describe the building (e.g., “Building 1 of 5” for multi-building projects).
- Line 1a: Allocation date, usually the year the building is placed in service.
- Line 1b: Annual credit dollar amount for the 10-year period.
- Line 2: Maximum applicable credit percentage (e.g., 4% minimum for certain subsidized or post-2020 projects; 9% for others).
- Line 3a: Maximum qualified basis.
- Line 3b: Percentage boost (up to 130%) for high-cost or designated areas.
- Line 4: Percentage financed by tax-exempt bonds.
- Line 5a: Placed-in-service date.
- Line 5b: Check if applicable for disaster zone extensions.
- Line 6: Check if the building is federally subsidized.
Agencies may reduce amounts for project feasibility and must check boxes for additions to qualified basis or amendments.
Part II: First-Year Certification (Owner-Completed)
Owners certify eligibility here:
- Line 7: Eligible basis (costs excluding land, federal grants, etc.; apply boosts if applicable).
- Line 8a: Qualified basis (eligible basis times the low-income fraction).
- Line 8b: Check if part of a multi-building project (attach a statement with details).
- Line 9a: Elect to reduce basis by tax-exempt bond proceeds (irrevocable).
- Line 9b: Elect to exclude excess costs for above-average non-low-income units.
- Line 10a: Elect to begin the credit period the following year.
- Line 10b: Check to avoid recapture for large partnerships.
- Line 10c: Elect minimum set-aside requirement (e.g., 20-50%, 40-60%, or average income test).
- Line 10d: Elect deep rent skewing for certain projects.
Elections in this part are generally irrevocable and must align with project commitments.
Key Definitions in the Instructions
To navigate Form 8609 effectively, familiarize yourself with these terms:
- Eligible Basis: The adjusted cost basis of the building attributable to low-income units, excluding land and certain grants.
- Qualified Basis: Eligible basis multiplied by the fraction of low-income units or floor space.
- Placed in Service: The date the first unit is ready for occupancy.
- Low-Income Unit: A rent-restricted unit occupied by income-qualified tenants (e.g., at or below 60% of area median income).
- High-Cost Area: Qualified census tracts or difficult development areas eligible for a 130% basis increase.
- Federally Subsidized: Projects with outstanding tax-exempt bonds.
These definitions ensure accurate calculations and compliance.
Recent Updates and Changes to Form 8609 Instructions
The December 2025 revision incorporates several key updates:
- Minimum Credit Rates: A 4% floor for buildings placed in service after December 31, 2020, under the Taxpayer Certainty and Disaster Tax Relief Act of 2020 (exceptions for certain 2020 bonds per Revenue Ruling 2021-20).
- Disaster Relief: Extended deadlines for carryover allocations and rehabilitation in qualified disaster zones (e.g., up to December 31, 2023, for certain requirements).
- COVID-19 Relief: Temporary measures from Notice 2021-12 (amended by Notice 2022-5), including extensions for minimum set-aside tests, rehabilitation expenditures, and amenity closures through 2023.
- Rural Projects: Use of national non-metropolitan median income for eligibility.
- Other Clarifications: Revenue Procedure 2021-43 on related party arrangements and exemptions for transient housing like transitional programs.
Always check IRS.gov for the latest developments, as legislation can impact allocations.
Common FAQs About IRS Form 8609
What if my project involves tax-exempt bonds?
If 50% or more of the basis is bond-financed, no agency allocation is required, but you must still obtain a BIN and complete the form for certification.
How long do I need to keep records?
Owners should retain Form 8609 and related documents for at least three years after the end of the 15-year compliance period.
What are the penalties for non-compliance?
Failure to file accurately or provide required information can result in processing delays, credit denials, or penalties under Sections 6001 and 6011.
Can I amend Form 8609?
Yes, check the “Amended form” box and explain changes, such as allocation adjustments.
For more FAQs, refer to the official IRS instructions or consult a tax professional.
Conclusion
Mastering IRS Form 8609 and its instructions is crucial for leveraging the Low-Income Housing Tax Credit to support affordable housing initiatives. By following the guidelines for allocation, certification, and compliance, stakeholders can ensure projects remain viable and beneficial. For the most current details, visit the IRS website or download the form and instructions directly. If you’re involved in LIHTC projects, consulting with a qualified tax advisor is recommended to navigate specific scenarios.