Home / Tools / Year 15 Exit Modeler
Pro Tool · IRC §42(h)(6)(F)

LIHTC Year 15 Exit Modeler.

Compute the Qualified Contract price, ROFR minimum, and compare exit pathways at the end of the §42 compliance period.

Interactive tool · QC + ROFR math

Year 15 Exit Pathways

Enter deal economics. The model computes the statutory Qualified Contract price per IRC §42(h)(6)(F), the ROFR minimum price (debt + exit taxes), and compares net proceeds across pathways.

Sum of capital contributions across the holding period
Year 1 of credit period typically = PIS year or year after
Enter 1 + the §1(f)(3) cost-of-living adjustment (e.g., 0.4250 adjustment → enter 1.4250) — per §42(h)(6)(G), published in annual IRS Revenue Procedures
Low-income unit fraction — applied to the low-income component of the §42(h)(6)(F) price
Mortgage balance at Year 15
§42(h)(6)(F) (non-low-income chapeau term): added in full to the QC price. At 100% applicable fraction this = $0 (no non-low-income portion).
§42(i)(7)(B)(i): excluded from the ROFR floor (prevents inflating it via recent refinancing). Subtracted from debt for ROFR only.
Cash flow distributions paid to investors during compliance period
§42(h)(6)(F)(i)(III) — other capital contributions not in debt or adjusted equity
Phantom income + recapture risk — estimate from LP tax counsel
Independent appraisal as encumbered by LURA
Often 0-15% per the LPA — varies by deal

Qualified Contract price breakdown (§42(h)(6)(F))

Exit pathway comparison

How Year 15 works

The LIHTC compliance period is 15 years (IRC §42(i)(1)). After Year 15, the property enters the Extended Use Period (EUP) — at least 15 more years of rent and income restrictions enforced via the Land Use Restriction Agreement (LURA). For investors, Year 15 is the typical exit point.

The Qualified Contract (QC) request

Per IRC §42(h)(6)(I), after Year 14 the owner may request the state HFA find a buyer at the statutory QC price. If the HFA can't find a buyer within 1 year, all LURA restrictions terminate and the property goes to market — but with a 3-year tenant protection period.

The QC price formula (§42(h)(6)(F)) has two parts: (A) the FMV of the non-low-income portion of the building, including proportionate land value (§42(h)(6)(F) opening clause — $0 when the applicable fraction is 100%), plus (B) the applicable fraction applied to the low-income components below:

  • Outstanding debt on the building (principal + accrued interest)
  • Adjusted investor equity = capital contributions × (1 + §1(f)(3) cost-of-living adjustment)
  • Other capital contributions not reflected in the outstanding debt or adjusted investor equity (§42(h)(6)(F)(i)(III))
  • Minus cash distributions from (or available for distribution from) the project (paid to investors during the compliance period)

The ROFR pathway

Under IRC §42(i)(7), if the partnership granted a right of first refusal to a qualified nonprofit (or government or tenant org), the ROFR price floor = qualifying outstanding debt + all federal, state, and local taxes attributable to the sale. Per §42(i)(7)(B)(i), qualifying debt excludes indebtedness incurred within the 5-year period ending on the date of sale to the tenants — a carve-out that prevents inflating the floor via recent refinancing. This is typically far below FMV and lets nonprofits acquire the property cheap to preserve affordability.

Practitioner note

QC requests have been controversial — many state QAPs now require waiver of QC rights as a condition of allocation, enforceable under the 'more stringent requirements' clause of §42(h)(6)(E)(i)(II) and 26 CFR §1.42-18(a)(2). Always verify your LURA terms, the state's current QC procedures, and the LPA's QC waiver/ROFR language before modeling exits.

FAQ

What's "adjusted investor equity"?
Per §42(h)(6)(F)(i)(II) and the definition in §42(h)(6)(G), adjusted investor equity = capital contributions increased by the §1(f)(3) cost-of-living adjustment — i.e., equity × (1 + COL adjustment). The IRS publishes the adjustment annually (the same chain-CPI series used elsewhere in the Code). For a deal placed in service in 2011, the cumulative adjustment is roughly 0.4250, so the multiplier entered above is 1.4250. This compensates LPs for inflation over the 15-year hold.
Why does the ROFR price ignore equity recovery?
By statute and design. §42(i)(7) gives nonprofits a path to acquire LIHTC properties at a price low enough to preserve affordability long-term. LPs accepting a ROFR understand they're giving up FMV upside in exchange for tax credits delivered during the compliance period. The "deal" is: 10 years of tax credits in exchange for ROFR-priced exit.
Can I waive the QC right?
Yes — and most state QAPs since ~2018 require it. State HFAs may require a QC waiver as a condition of credit allocation under the "more stringent requirements" clause of IRC §42(h)(6)(E)(i)(II) and 26 CFR §1.42-18(a)(2) (finalized in T.D. 9587, 2012). If your LPA includes a QC waiver, the QC pathway is unavailable and you'll exit via ROFR, purchase option, or sale to qualified third party.