Reminder: Changes to IRS Forms 8586 and 3800

March 18, 2009
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As a reminder this tax season, the Internal Revenue Service (IRS) has made some changes to Form 8586 and Form 3800. According to Grace Robertson at the IRS, the changes reflect an amendment made to the Housing Assistance Tax Act of 2008, which allows IRC Section 42 credit against Alternative Minimum Tax (AMT) if the credit is attributable to buildings placed in service after December 31, 2007. Form 8586 is used to claim the low-income housing credit, which is allowed for each new qualified low-income building placed in service after 1986. Generally, it is taken over a 10-year credit period. The revised Form 8586 now includes two parts. Part I is for buildings place in service before January 1, 2008, and is subject to the same AMT rules as in prior years. Part II is new and is used to identify the IRC section 42 credit associated with buildings placed in service after December 31, 2007. Taxpayers that are not partnerships, S corporations, estates or trusts, and whose only source of this credit is from buildings placed in service before 2008 from those pass-through entities, are not required to complete or file Form 8586. Instead, they can report this credit directly on line 1d of Form 3800. Credits attributable to buildings placed in service after January 31, 2007 are accounted for on line 29d of Form 3800. The low-income housing credit can only be claimed for residential rental buildings in low-income housing projects that meet one of the minimum set aside tests. Except for buildings financed with certain tax-exempt bonds, owners cannot take a low-income housing credit on a building if it has not received an allocation from the housing credit agency. However, an allocation is not needed when 50 percent or more of the aggregate basis of the building and the land on which the building is located is financed with certain tax-exempt bonds issued after 1989 for buildings placed in service after that year. The owner must still get a Form 8609 from the appropriate housing credit agency. The IRS warns that there is a 15-year compliance period during which the building must continue to meet certain requirements. For example, if, as of the close of the tax year during the compliance period, there is a reduction in the qualified basis of the building from the previous year, the owner will need to recapture part of the credit it has taken. Similarly, the owner may have to recapture part of the credits taken in previous years upon certain dispositions of the building.