The US Tax Court recently ruled that bond issuance costs and fees are eligible for basis in low-income housing tax credit. This decision is a major win for taxpayers who have been seeking clarity on the issue for years. The ruling is expected to have a significant impact on the affordable housing industry, as it will allow developers to claim additional tax credits and potentially attract more investors.
The U.S. Tax Court yesterday held that a taxpayer properly included in its “eligible basis” for purposes of computing the low-income housing tax credit under section 42, its financing costs incurred “by reason of” the taxpayer’s construction of residential rental property—including bond fees, whether or not the bondholders are exempt from federal income tax under section 103 on the bond interest.
The case is: 23rd Chelsea Associates L.L.C. v. Commissioner, 162 T.C. No. 3 (February 20, 2024). Read text of the Tax Court’s opinion [PDF 191 KB]
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