Affordable housing finance
Minimum set-aside
The irrevocable IRC § 42(g) election — 20% of units at 50% AMI, 40% at 60%, or average income — a project must satisfy to claim any credits at all.
Definition
Every LIHTC project elects a minimum set-aside under IRC § 42(g)(1) on Form 8609: 20-50 (20% of units at 50% of AMI), 40-60 (40% at 60%), or the average-income test (40% of units, designations averaging no more than 60% AMI, per the § 1.42-19 regulations). The election is irrevocable, must be satisfied by the close of the first credit year, and is the threshold test: a project that fails it earns no credits — not fewer. Bond-financed deals carry a parallel election under § 142(d) for the bonds themselves.
Why it matters in an underwrite
This is the one election with cliff consequences: miss the set-aside in year one and there are no credits to sell; fail it in a later year and that year's credits are lost with recapture exposure on top. Nearly all deals restrict far more than the minimum — California scoring effectively requires it — but the election still fixes the compliance baseline and the rent matrix, so model all three options before Form 8609 is filed. There is no amendment path.
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.