What Year 15 means
Year 15 is shorthand in the LIHTC industry for the end of the federal compliance period. Under IRC § 42(i)(1), the LIHTC compliance period is 15 taxable years beginning with the first taxable year of the credit period. During the compliance period, the property must satisfy all LIHTC requirements — income restrictions, rent restrictions, minimum set-aside, full occupancy — or face credit recapture under IRC § 42(j).
Year 15 is not the end of LIHTC restrictions, however. IRC § 42(h)(6) requires every LIHTC property to commit to an extended use period of at least 15 additional years beyond the compliance period (30 years total). The extended use period is documented in a recorded extended-use agreement — the "LURA" (Land Use Restriction Agreement) or "Declaration of Land Use Restrictive Covenants" — between the owner and the state HFA. Some state QAPs require longer extended use periods (40, 50, or 99 years) as a condition of LIHTC allocation; the federal floor is 15 additional years.
Why Year 15 matters to practitioners
The Year 15 milestone matters for three structural reasons:
- The compliance period ends. Recapture risk drops to zero. The owner's primary federal obligation is satisfied (extended use compliance continues but does not carry credit-recapture exposure).
- The partnership exit window opens. The LP investor — typically a tax-credit syndicator or institutional investor that took the credits — generally exits the partnership at or near Year 15. The exit is governed by the LP Agreement and is typically structured as a buyout of the LP interest by the GP (or by a new LIHTC syndicator in a re-syndication).
- Capital can be released or refinanced. If the project has appreciated, has built debt capacity, or qualifies for a second-round LIHTC allocation, the Year 15 milestone is the natural inflection point to refinance debt, capitalize a major rehabilitation, or fully recapitalize through resyndication.
The four Year 15 exit pathways
Practitioners structure Year 15 exits along four canonical pathways. The right pathway depends on the partnership documents, property condition, market conditions, and the goals of the GP and LP.
1. GP buyout of the LP interest
The most common pathway. The GP (typically a developer or non-profit sponsor) buys out the LP's partnership interest at a price determined by the LP Agreement. The LP exits, the GP becomes the sole owner (or partners with a new entity), and the property continues to operate under the extended-use agreement. LP buyout pricing is governed by the LP Agreement's Year 15 provisions, which commonly use one of three approaches: (1) capital account plus exit fee; (2) fixed dollar amount; (3) fair market value of the LP interest at Year 15. Some LP Agreements contain a "put" option allowing the LP to compel a buyout at a predetermined price; the IRS generally permits such puts provided they do not undermine the LP's status as a tax partner under the substance-over-form rules of Rev. Proc. 2014-12 (the "safe harbor").
2. Resyndication with new LIHTC
Many states allow LIHTC properties to apply for a second round of LIHTC allocation at or near Year 15 — typically structured as a substantial rehabilitation of the property under a new LP and a new compliance period. Resyndication can deliver substantial new equity to fund deferred maintenance, capital improvements, and additional affordability commitments. State QAPs commonly score resyndication applications under "preservation" or "acquisition-rehab" categories, sometimes with set-asides or scoring bonuses. The new LIHTC creates a new 15-year compliance period and a fresh extended-use period.
3. Sale to a third party
The property is sold to a new owner. The extended-use agreement runs with the land, so the new owner inherits the extended-use obligations. Sale prices reflect remaining cash flow under the extended-use rent restrictions, plus any additional value from the underlying real estate, deferred capital improvements, and tax considerations. Sales to non-profits sometimes use the "Right of First Refusal" (ROFR) under IRC § 42(i)(7), discussed below.
4. Qualified Contract
Under IRC § 42(h)(6)(F), an owner may submit a Qualified Contract Request to the state HFA after Year 14, requesting that the HFA find a buyer willing to pay the "qualified contract price" (a statutorily defined formula reflecting outstanding debt, capital account, distribution shortfalls, and adjustments). If the HFA cannot find a willing buyer within one year, the extended-use agreement terminates and the property exits LIHTC. The qualified contract option is rarely used in practice because the statutorily calculated price is often above market — but it remains the practitioner's exit-of-last-resort and an important leverage point in some partnership disputes. Many state QAPs require allocation applicants to waive the qualified contract option as a condition of credit allocation.
The Right of First Refusal (ROFR)
IRC § 42(i)(7) provides for a Right of First Refusal allowing a qualifying non-profit to purchase a LIHTC property at a price equal to debt plus exit taxes (often substantially below fair market value). The ROFR is a contractual right granted in the partnership agreement or in a separate ROFR agreement; it must be drafted to comply with the IRC § 42(i)(7) framework to be tax-respected. The Tax Court's 2020 decision in SunAmerica Housing Fund reinforced the requirement that ROFR triggers and pricing be drafted with care. ROFR transactions remain a principal exit pathway for non-profit-sponsored deals; practitioners on for-profit-sponsored deals encounter ROFR less frequently.
Extended use compliance after Year 15
During the extended use period, the property must continue to satisfy the income and rent restrictions agreed in the LURA, but it is no longer subject to credit recapture. Enforcement is by the state HFA, typically through reduced inspection frequency and reduced reporting requirements relative to the compliance period. Violations during the extended use period are pursued as contract enforcement under the LURA rather than as IRS recapture, and remedies vary by state.
Post-OBBBA implications
OBBBA (P.L. 119-21, signed July 4, 2025) did not amend the Year 15 framework. Compliance period (15 years), extended use period (additional 15 years), qualified contract, and ROFR mechanics all remain as enacted. Indirect post-OBBBA effects: the higher 9% LIHTC ceiling and the lower 4% bond financed-by test make resyndication a more viable exit pathway for many properties — practitioners should re-evaluate resyndication feasibility for Year 15-approaching properties in light of the larger 2026 allocation pools.
Sources
- IRC § 42(i)(1) (compliance period)
- IRC § 42(h)(6) (extended use agreement)
- IRC § 42(h)(6)(F) (qualified contract)
- IRC § 42(i)(7) (right of first refusal for non-profits)
- IRC § 42(j) (recapture)
- Rev. Proc. 2014-12 (LIHTC partnership safe harbor)
- Tax Court, SunAmerica Housing Fund 1050 v. Commissioner (2020)
- P.L. 119-21, One Big Beautiful Bill Act, enacted July 4, 2025
Disclaimer
Year 15 exit structuring is governed by the specific LP Agreement, state extended-use agreement, applicable QAP, and federal tax law. Each exit pathway has substantial tax consequences for both the GP and LP, including potential exit taxes, partnership termination considerations, and basis recapture in some structures. Practitioners should consult qualified tax counsel and the LP Agreement before pursuing any Year 15 exit. This is educational content and is not legal, tax, or financial advice.