Interactive tool · §42(d) eligible basis build-up
Eligible basis → equity
Construction budget − ineligible items = eligible basis × boost × applicable fraction = qualified basis × rate × 10 × tax-credit factor = equity.
1. Total construction / rehab budget
All development costs for the new-construction / rehab building(s). Exclude existing-building acquisition price (handled separately).
2. Ineligible items & basis reductions to back out
Total ineligible items$0
New/rehab eligible basis (budget − ineligible)$0
3. Acquisition (existing-building / acq-rehab deals)
Depreciable basis of the existing building you are buying — not the land. Credited at 4% and never boosted. Generates an acquisition credit only if the building is also substantially rehabbed (§42(d)(2)(B)(iv)). Leave at 0 for new construction.
4. Boost & credit assumptions
Acquisition basis is always credited at 4%.
How eligible basis works
LIHTC credits are sized off eligible basis — the depreciable cost of the building. The practitioner shortcut is to take your total construction/rehab budget and back out the costs that are not depreciable building costs: land, permanent financing, syndication, reserves, and marketing. What remains is your eligible basis under IRC §42(d).
From there: eligible basis × the 130% high-cost adjustment (if the building is in a DDA, QCT, or gets a state-discretionary boost) gives adjusted eligible basis; × the applicable fraction (low-income unit share) gives qualified basis; × the credit rate gives the annual credit; × 10 years × your tax-credit factor (equity price per credit dollar) gives total LIHTC equity.
Two things to get right
- Acquisition basis is credited at 4% and not boosted. On an acquisition/rehab deal, enter the existing-building basis (not land) in the Acquisition field — it generates a 4% credit and is never eligible for the 130% boost; only new-construction/rehab basis is (§42(d)(5)(B)). The acquisition credit is available only if the building is also substantially rehabilitated (§42(d)(2)(B)(iv)).
- The rate is floored, not floated. Since 2021 the 9% credit carries a permanent 9% minimum rate and the 4% credit a permanent 4% minimum rate. The older AFR-discounting method (PV of the 10-year stream = 70% / 30% of qualified basis) is now mostly of historical interest — the floors govern in practice.
FAQ
Is construction-period interest and insurance ineligible?
No — that's a common simplification. Interest, insurance, and real-estate taxes incurred during construction are capitalized into depreciable basis under §263A and are therefore includable. Even construction-period financing costs (bond issuance, LOC, origination, underwriter fees allocable to the construction period) are includable per 23rd Chelsea Associates LLC v. Commissioner, 162 T.C. No. 3 (2024). It's permanent-financing costs (points, lender legal, permanent-loan fees) and ongoing operating insurance that are excluded. This tool defaults the financing line to permanent-financing costs only.
What's always excluded from eligible basis?
Land; permanent financing costs; syndication and partnership/organizational costs (IRC §709); state-HFA credit allocation/application fees (Rev. Rul. 2004-82); operating, replacement and lease-up reserves; working capital; marketing/lease-up costs; and the cost of commercial / non-residential space (§42(d)(4)(A) limits basis to residential rental property). In addition, federal grants reduce eligible basis under §42(d)(5)(A) — but federal rental assistance (Section 8) is expressly carved out and does not reduce basis (26 CFR §1.42-16). Claiming the historic (§47) credit also reduces LIHTC basis via IRC §50(c) (the §47 credit cuts the building's adjusted basis, which flows into §42(d)(1) eligible basis). For buildings placed in service after Dec 31, 2022, IRA 2022 carved the energy credits (ITC, clean-electricity) out of that §50(c) reduction, but the §47 historic credit still reduces basis.
Is the developer fee includable?
Generally yes — the developer fee is includable in eligible basis, but the amount is capped by your state QAP, not by federal statute, and the cap varies widely by state and deal type. Because it's typically a budgeted cost (not backed out), leave it in the construction budget unless your QAP disallows a portion.
How is this different from the Basis Boost Calculator?
This tool builds the eligible-basis number (budget minus ineligible items). The Basis Boost Calculator takes an eligible-basis number you already have and focuses on the 130% boost and equity uplift. Use the handoff button to send your result there.