Affordable housing finance
Eligible basis
The depreciable development cost of a LIHTC building under IRC § 42(d): construction, soft costs and developer fee in; land and federal grants out.
Definition
Eligible basis under IRC § 42(d) is, broadly, the depreciable basis of the residential building at placed-in-service: hard construction, capitalizable soft costs, contractor overhead and the developer fee. Out: land, permanent-financing and syndication costs, commercial space, and costs funded by federal grants. In DDA/QCT locations — or by state designation on 9% deals — it is counted at 130%.
On acquisition/rehab deals the purchase basis of an existing building can also qualify. Twinning with the § 47 rehabilitation credit reduces eligible basis through that credit's required basis adjustment, and the CTCAC regulations impose their own basis and cost limits on top of the federal rules.
Why it matters in an underwrite
Basis is the equity throttle. On a 9% deal, a dollar of eligible basis typically supports on the order of 75–80 cents of credit equity (ten years of credits at typical pricing), so every dollar the cost certification excludes — land mis-allocations, permanent-loan fees, grant-funded work — cuts the raise almost dollar-for-dollar. The IRS audit guide works line-by-line through basis, and developer-fee or related-party padding is its favorite finding.
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.