Affordable housing finance
Applicable fraction
The low-income share of a LIHTC building — the lesser of its unit fraction and floor-space fraction — that converts eligible basis into qualified basis.
Definition
Under IRC § 42(c)(1), the applicable fraction is the smaller of two ratios: the unit fraction (low-income units over total residential units) and the floor-space fraction (low-income square footage over total residential square footage). Measured building by building at each year-end, it is what converts eligible basis into qualified basis. A 100% affordable project runs at 1.0; a mixed-income building earns credits only on its low-income fraction — and because the lesser ratio governs, restricting only the smallest units does not buy the full unit-count percentage.
Why it matters in an underwrite
The first-year fraction effectively caps the deal: later increases earn only two-thirds credits, and any drop during the 15-year compliance period reduces qualified basis and triggers recapture of accelerated credits. In mixed-income deals, unit-size skew is real money — if the affordable units average smaller than the market units, the floor-space fraction governs and the pro forma built on unit count overstates the credits.
Sources & related guides
See also
See the term in the law itself
Read the controlling text in the Code Library, or ask the AI how it applies to your project.
Last reviewed 2026-07-29. General information, not legal advice.