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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.

Cash invested by owners for qualifying building costs (§42(d) eligible basis), obligated as of the start of the credit period — excludes equity for land, syndication/legal/accounting, credit adjusters, HFA fees, and operating-deficit contributions (§42(h)(6)(G)(i); Reg §1.42-18(c)(4)(ii))
Year 1 of credit period typically = PIS year or year after
Enter 1 + the §42(h)(6)(G) cost-of-living adjustment (e.g., 0.35 adjustment → enter 1.3500; default is illustrative). Not published by the IRS — compute it under §42(h)(6)(G)/§1(f)(3) (C-CPI-U, 5% annual cap; see Treas. Reg. §1.42-18(c)(4)) from BLS data, or obtain it from the allocating agency.
Low-income unit fraction — applied to the low-income component of the §42(h)(6)(F) price
Remaining stated principal of debt secured by the building — no accrued interest. For the QC price, only debt up to qualifying building costs counts (Reg §1.42-18(c)(3)); refinancing in excess of those costs is excluded
§42(h)(6)(F) (non-low-income term), added in full to the QC price. Per Reg §1.42-18(b)(3) it includes the FMV of the land under the ENTIRE building (as encumbered by the extended-use commitment) plus any non-eligible-basis personal property that conveys — so it is not $0 even at a 100% applicable fraction.
§42(i)(7)(B)(i): excluded from the ROFR floor (prevents inflating it via recent refinancing). Subtracted from debt for ROFR only.
Reg §1.42-18(c)(6): all distributions to any owner (GP and LP) or §267(b)/§707(b)(1) related party, plus cash and non-restricted reserves available at sale (operating/replacement reserves count unless legally required to stay with the building). Excess refinancing proceeds excluded.
§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, which per Treas. Reg. §1.42-18(b)(3) always includes the full FMV of the land under the entire building (as encumbered by the extended-use commitment) — so this term is not $0 even at a 100% applicable fraction — plus (B) the applicable fraction applied to the low-income components below:

  • Outstanding indebtedness — remaining stated principal (no accrued interest) of debt secured by the building, up to qualifying building costs (Reg §1.42-18(c)(3))
  • Adjusted investor equity = unadjusted investor equity (cash invested for qualifying building costs, obligated as of the start of the credit period) × (1 + §42(h)(6)(G) 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 — all distributions to owners and related parties, plus cash and non-restricted reserves available at sale (Reg §1.42-18(c)(6))

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 = unadjusted investor equity (cash invested for qualifying building costs, obligated as of the start of the credit period) increased by a cost-of-living adjustment — i.e., equity × (1 + COL adjustment). The adjustment is not published by the IRS: it is computed under §42(h)(6)(G)/§1(f)(3) (C-CPI-U) and Treas. Reg. §1.42-18(c)(4) — the index for the calendar year before the offer divided by the index for the base calendar year — and any year-over-year increase above 5% is never taken into account. For a 2011 base year with an offer in 2025–2026, the capped adjustment works out to roughly 0.31–0.39 depending on the index reading (C-CPI-U per the statute vs. CPI-U per the regulation text) and offer year; the 1.3500 default above is illustrative. 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.