The LIHTC qualified contract: who can ask, what price, what happens

A qualified contract is a bona fide contract, which the state housing credit agency must present, to buy a tax credit building at a price set by statute. If the owner asks for one and the agency can’t present it within a year, the building’s extended use period ends early.

Who can ask, and when

The owner submits a written request to the agency after the 14th year of the compliance period. The agency’s one-year clock starts on the date of the request (IRC 42(h)(6)(I)). The right exists only to the extent the extended use agreement and state law allow it: the statute says the early-termination rule doesn’t apply “to the extent more stringent requirements are provided in the agreement or in State law.”

The price

Under 42(h)(6)(F), a qualified contract buys:

• the market-rate portion at fair market value, and
• the low-income portion for at least the applicable fraction times (outstanding debt + adjusted investor equity + other capital contributions − cash distributions).

Adjusted investor equity is the cash investors were obligated to invest as of the start of the credit period, increased by a cost-of-living adjustment, ignoring any year’s increase above 5% (42(h)(6)(G)). Treasury regulation 1.42-18 fills in the details, including which debt counts, how reserves are treated and the anti-manipulation rules.

A worked example with round numbers: an all-low-income building with $6,200,000 of debt, $9,000,000 of investor cash grown 40% by the cost-of-living adjustment to $12,600,000, and $600,000 of distributions. The qualified contract price is $6,200,000 + $12,600,000 − $600,000 = $18,200,000. A buyer has to agree to keep running the low-income portion as a qualified low-income building at that price, which is a high bar when restricted rents are what pay for it. Run your own figures in the exit calculator.

If no buyer appears

Extended use ends on the last day of the agency’s one-year period. It doesn’t free the tenants’ units at once: for three years after termination, existing low-income tenants can’t be evicted or have their tenancy ended except for good cause, and their rents can’t rise beyond what section 42 allows (42(h)(6)(E)(ii)).

Why waivers matter

Because a failed qualified contract ends affordability early, states can require owners to give up the right, through the extended use agreement or the allocation plan. USDA’s Section 538 program goes further and awards 12 priority points to tax credit deals whose owners waive it (89 FR 104031, December 2024). Check your agreement before you plan around a request.