TAX CREDIT SPECIALIST EXAM ACTUAL 2025/2026
QUESTIONS AND 100% CORRECT ANSWERS | VERIFIED |
GRADED A+
LOW-INCOME HOUSING TAX CREDIT (LIHTC)
COMPLIANCE CERTIFICATION.
INTRODUCTION .
This comprehensive study guide is designed for candidates preparing for Tax Credit Specialist
(TCS) certification and related LIHTC compliance examinations for the 2025/2026 testing cycle.
The Tax Credit Specialist exam validates expertise in IRS Section 42 of the Internal Revenue
Code, which governs the Low-Income Housing Tax Credit program .
Certification Information:
Certification Names: Tax Credit Specialist (TCS), Housing Credit Certified Professional (HCCP),
Certified Credit Compliance Professional (C3P)
Governing Regulation: IRS Section 42 of the Internal Revenue Code
Administering Agencies: State Housing Finance Agencies (HFAs) allocate credits; IRS oversees
compliance
Program Purpose: Provide private capital for development of affordable rental housing
Target Audience: Property managers, compliance specialists, owners, developers, asset
managers, and housing authority staff
Major Content Areas Covered:
LIHTC Fundamentals: Purpose, annual credit allocation ($2.75+ per capita), 4% and 9% credits,
30% present value credit rate, 10-year credit period, 15-year compliance period, extended use
period (30 years minimum), placed-in-service date
Eligible Basis and Qualified Basis: Eligible basis (development costs minus land and non-
depreciable costs), qualified basis (eligible basis × applicable fraction), applicable fraction (low-
income units/total units), average income test, 20-50 test, 40-60 test
Tenant Eligibility: Area Median Income (AMI) limits (adjusted annually by HUD), income
certification (TIC), annual recertification, student rule (full-time students generally ineligible
unless meeting exceptions), asset inclusion (imputed income from assets > $5,000), verification
documentation (3rd party preferred)
,Rent Calculations: Maximum rent = 30% of applicable AMI (adjusted for bedroom size) minus
utility allowance, rent restrictions for low-income units, utility allowances (including utility
reimbursements)
Compliance Monitoring: IRS Form 8609 (credit allocation), Form 8823 (noncompliance
reporting), Form 8586 (credit claim), site visits (annual minimum 20% of properties), resident
file documentation, state HFA role
Recapture and Noncompliance: Recapture rate (1/3 of 1% per month), material vs non-material
noncompliance, correction periods (90 days non-material, 6 months material), qualified
contract, right of first refusal
Special Issues: Mixed-income properties, acquisition and rehabilitation (10-year rule), Rural
Development (USDA) properties, tax-exempt bond financing (4% credit), carryover allocations
(10% test)
This examination reflects all 2025/2026 LIHTC regulatory updates and is verified for accuracy
with current IRS Section 42 standards and state HFA requirements . Each question includes the
correct answer and a detailed rationale with regulatory citations to support exam readiness and
real-world compliance practice.
Section 1: LIHTC Program Overview and Fundamentals (Q 1-25)
Q1: The Low-Income Housing Tax Credit (LIHTC) program was created by which federal
legislation?
A. Housing and Community Development Act of 1974
B. Tax Reform Act of 1986
C. Cranston-Gonzalez National Affordable Housing Act of 1990
D. American Recovery and Reinvestment Act of 2009
[CORRECT] B. Tax Reform Act of 1986
Rationale:
The LIHTC program was created by the Tax Reform Act of 1986 (Section 42 of the Internal
Revenue Code) to encourage private investment in affordable rental housing through federal tax
credits .
Q2: What is the primary purpose of the LIHTC program?
A. To provide direct subsidies to low-income renters
,B. To attract private capital for the development of affordable rental housing
C. To fund public housing authorities
D. To eliminate all low-income housing requirements
[CORRECT] B. To attract private capital for the development of affordable rental housing
Rationale:
The LIHTC program uses federal tax credits to incentivize private developers and investors to
build and rehabilitate affordable rental housing for low-income households .
Q3: Who is responsible for allocating Low-Income Housing Tax Credits?
A. IRS directly allocates credits to developers
B. Each state's Housing Finance Agency (HFA)
C. HUD allocates all credits nationally
D. Local city governments
[CORRECT] B. Each state's Housing Finance Agency (HFA)
Rationale:
The IRS allocates credits to each state based on population, and state Housing Finance Agencies
(HFAs) are responsible for allocating credits to qualifying developments through a Qualified
Allocation Plan (QAP) .
Q4: What is the annual LIHTC allocation amount per capita (approximate)?
A. $1.50
B. $2.75
C. $5.00
D. $10.00
[CORRECT] B. $2.75
Rationale:
States receive an annual LIHTC allocation of approximately $2.75 per capita ($2.8125 for 2025),
with a small state minimum of $3,000,000 .
Q5: The two types of LIHTC credit rates are:
, A. 3% and 6%
B. 4% and 9%
C. 5% and 10%
D. 2% and 8%
[CORRECT] B. 4% and 9%
Rationale:
The two LIHTC credit rates are the 4% credit (typically for acquisitions/rehab with tax-exempt
bonds) and the 9% credit (for new construction without federal subsidies). The 4% credit is
calculated to yield a 30% present value; the 9% credit yields approximately 70% present value .
Q6: The 9% credit is generally available for:
A. Acquisition of existing buildings only
B. New construction and substantial rehabilitation without federal subsidies
C. Properties financed with tax-exempt bonds
D. Rural Development properties only
[CORRECT] B. New construction and substantial rehabilitation without federal subsidies
Rationale:
The 9% credit is typically available for new construction or substantial rehabilitation of
properties not receiving other federal subsidies (e.g., tax-exempt bonds). The 4% credit is used
for acquisition or properties with tax-exempt bond financing .
Q7: The present value of the 9% credit over the 10-year credit period is approximately:
A. 30%
B. 50%
C. 70%
D. 90%
[CORRECT] C. 70%
Rationale:
QUESTIONS AND 100% CORRECT ANSWERS | VERIFIED |
GRADED A+
LOW-INCOME HOUSING TAX CREDIT (LIHTC)
COMPLIANCE CERTIFICATION.
INTRODUCTION .
This comprehensive study guide is designed for candidates preparing for Tax Credit Specialist
(TCS) certification and related LIHTC compliance examinations for the 2025/2026 testing cycle.
The Tax Credit Specialist exam validates expertise in IRS Section 42 of the Internal Revenue
Code, which governs the Low-Income Housing Tax Credit program .
Certification Information:
Certification Names: Tax Credit Specialist (TCS), Housing Credit Certified Professional (HCCP),
Certified Credit Compliance Professional (C3P)
Governing Regulation: IRS Section 42 of the Internal Revenue Code
Administering Agencies: State Housing Finance Agencies (HFAs) allocate credits; IRS oversees
compliance
Program Purpose: Provide private capital for development of affordable rental housing
Target Audience: Property managers, compliance specialists, owners, developers, asset
managers, and housing authority staff
Major Content Areas Covered:
LIHTC Fundamentals: Purpose, annual credit allocation ($2.75+ per capita), 4% and 9% credits,
30% present value credit rate, 10-year credit period, 15-year compliance period, extended use
period (30 years minimum), placed-in-service date
Eligible Basis and Qualified Basis: Eligible basis (development costs minus land and non-
depreciable costs), qualified basis (eligible basis × applicable fraction), applicable fraction (low-
income units/total units), average income test, 20-50 test, 40-60 test
Tenant Eligibility: Area Median Income (AMI) limits (adjusted annually by HUD), income
certification (TIC), annual recertification, student rule (full-time students generally ineligible
unless meeting exceptions), asset inclusion (imputed income from assets > $5,000), verification
documentation (3rd party preferred)
,Rent Calculations: Maximum rent = 30% of applicable AMI (adjusted for bedroom size) minus
utility allowance, rent restrictions for low-income units, utility allowances (including utility
reimbursements)
Compliance Monitoring: IRS Form 8609 (credit allocation), Form 8823 (noncompliance
reporting), Form 8586 (credit claim), site visits (annual minimum 20% of properties), resident
file documentation, state HFA role
Recapture and Noncompliance: Recapture rate (1/3 of 1% per month), material vs non-material
noncompliance, correction periods (90 days non-material, 6 months material), qualified
contract, right of first refusal
Special Issues: Mixed-income properties, acquisition and rehabilitation (10-year rule), Rural
Development (USDA) properties, tax-exempt bond financing (4% credit), carryover allocations
(10% test)
This examination reflects all 2025/2026 LIHTC regulatory updates and is verified for accuracy
with current IRS Section 42 standards and state HFA requirements . Each question includes the
correct answer and a detailed rationale with regulatory citations to support exam readiness and
real-world compliance practice.
Section 1: LIHTC Program Overview and Fundamentals (Q 1-25)
Q1: The Low-Income Housing Tax Credit (LIHTC) program was created by which federal
legislation?
A. Housing and Community Development Act of 1974
B. Tax Reform Act of 1986
C. Cranston-Gonzalez National Affordable Housing Act of 1990
D. American Recovery and Reinvestment Act of 2009
[CORRECT] B. Tax Reform Act of 1986
Rationale:
The LIHTC program was created by the Tax Reform Act of 1986 (Section 42 of the Internal
Revenue Code) to encourage private investment in affordable rental housing through federal tax
credits .
Q2: What is the primary purpose of the LIHTC program?
A. To provide direct subsidies to low-income renters
,B. To attract private capital for the development of affordable rental housing
C. To fund public housing authorities
D. To eliminate all low-income housing requirements
[CORRECT] B. To attract private capital for the development of affordable rental housing
Rationale:
The LIHTC program uses federal tax credits to incentivize private developers and investors to
build and rehabilitate affordable rental housing for low-income households .
Q3: Who is responsible for allocating Low-Income Housing Tax Credits?
A. IRS directly allocates credits to developers
B. Each state's Housing Finance Agency (HFA)
C. HUD allocates all credits nationally
D. Local city governments
[CORRECT] B. Each state's Housing Finance Agency (HFA)
Rationale:
The IRS allocates credits to each state based on population, and state Housing Finance Agencies
(HFAs) are responsible for allocating credits to qualifying developments through a Qualified
Allocation Plan (QAP) .
Q4: What is the annual LIHTC allocation amount per capita (approximate)?
A. $1.50
B. $2.75
C. $5.00
D. $10.00
[CORRECT] B. $2.75
Rationale:
States receive an annual LIHTC allocation of approximately $2.75 per capita ($2.8125 for 2025),
with a small state minimum of $3,000,000 .
Q5: The two types of LIHTC credit rates are:
, A. 3% and 6%
B. 4% and 9%
C. 5% and 10%
D. 2% and 8%
[CORRECT] B. 4% and 9%
Rationale:
The two LIHTC credit rates are the 4% credit (typically for acquisitions/rehab with tax-exempt
bonds) and the 9% credit (for new construction without federal subsidies). The 4% credit is
calculated to yield a 30% present value; the 9% credit yields approximately 70% present value .
Q6: The 9% credit is generally available for:
A. Acquisition of existing buildings only
B. New construction and substantial rehabilitation without federal subsidies
C. Properties financed with tax-exempt bonds
D. Rural Development properties only
[CORRECT] B. New construction and substantial rehabilitation without federal subsidies
Rationale:
The 9% credit is typically available for new construction or substantial rehabilitation of
properties not receiving other federal subsidies (e.g., tax-exempt bonds). The 4% credit is used
for acquisition or properties with tax-exempt bond financing .
Q7: The present value of the 9% credit over the 10-year credit period is approximately:
A. 30%
B. 50%
C. 70%
D. 90%
[CORRECT] C. 70%
Rationale:
