Securing Low-Income Housing Tax Credits (LIHTCs) is a significant achievement for any affordable housing developer. But the ability to claim and retain the full value of those credits depends on what happens next. Long-term compliance isn’t just a regulatory requirement—it’s a financial safeguard.

Understanding how to maintain compliance throughout the affordability period is essential for protecting credit equity, preserving investor confidence, and ensuring lasting impact in the communities you serve.

Understanding the Compliance Timeline

After a LIHTC property is placed in service, it enters a 15-year compliance period during which the project must adhere to federal rent and income restrictions. This period is enforced by both the IRS and the allocating state housing agency.

Following the initial compliance phase, most properties are subject to an extended use period, often lasting at least another 15 years. During this time, affordability requirements continue, although the tax credit recapture risk applies primarily to the first 15 years.

Failing to comply with program rules during this period can result in recapture of previously claimed credits—a scenario that affects both sponsors and investors.

Core Compliance Requirements

Maintaining compliance involves more than just meeting income targets. It’s an ongoing operational commitment that includes:

• Annual income certifications and recertifications
• Adherence to maximum rent limits as published by HUD
• Tracking and maintaining the correct unit mix
• Timely and accurate reporting to state housing agencies
• Maintaining physical condition and readiness for inspection
• Documenting tenant eligibility and household composition
• Following all Fair Housing and accessibility regulations

Each of these elements must be managed with precision throughout the life of the credit period.

Risks of Noncompliance

Even small oversights can lead to significant consequences. Common violations include:

• Renting units to ineligible households
• Charging rent above allowable limits
• Missing certification or recertification deadlines
• Inadequate or incomplete documentation
• Units falling out of service due to maintenance or habitability issues

If any of these issues persist without correction, the IRS may disallow credits for the noncompliant units and trigger recapture of credits already taken, along with interest. This puts financial pressure on both developers and their investor partners and can also damage reputational standing with state agencies.

Best Practices for Long-Term Success

Maintaining full compliance is possible with the right systems and oversight in place. Here are a few proven strategies:

• Develop a strong compliance management plan that defines roles, responsibilities, and timelines
• Train on Section 42 requirements regularly, especially when onboarding new staff or property managers
• Leverage compliance software that tracks tenant income, unit status, and certification deadlines
• Maintain open communication with state housing agencies, and respond promptly to any findings or notices
• Perform internal audits of tenant files and site operations on a regular basis
• Engage third-party compliance consultants for reviews or support as needed

Proactive compliance is far less costly than reactive corrections.

How Fallbrook Can Help

At Fallbrook Financial Services, we understand that compliance is key to preserving credit value and long-term project success. Our team works closely with developers, asset managers, and institutional partners to support ongoing oversight, strategic planning, and investor reporting across the life of a LIHTC property.

Whether you’re navigating your first compliance cycle or managing a portfolio of mature assets, Fallbrook can help ensure your credits remain protected and your mission stays on track.

Have questions about compliance strategies or preparing for an agency review? Contact us at team@fallbrookfinance.com.

Fallbrook Financial Services is a leading advisor in tax credit monetization and asset management, specializing in affordable housing, renewable energy, and entertainment finance. We connect developers with institutional capital and offer tailored strategies across more than 40 state and federal incentive programs.