LIHTC right of first refusal: the 42(i)(7) minimum purchase price
Section 42(i)(7) lets a tax credit partnership give a right of first refusal to buy the property after the compliance period, without costing the investors their tax benefits, as long as the price is at least a statutory minimum. The holder has to be the building’s tenants (in cooperative form or otherwise), a resident management corporation, a qualified nonprofit or a government agency.
The minimum purchase price
Two pieces, under 42(i)(7)(B):
- the principal of outstanding debt secured by the building, other than debt taken on in the five years ending on the date of the sale, and
- all federal, state and local taxes attributable to the sale.
Investor equity isn’t in the formula, and neither is market value. On a building with $6,200,000 of qualifying debt and $450,000 of exit taxes, the minimum is $6,650,000, whatever the property would fetch on the open market. Compare that with the qualified contract price on the same numbers, which adds back inflation-adjusted investor equity, in the exit calculator.
The five-year debt rule
Debt taken on in the five years before the sale doesn’t count. That stops an owner from borrowing against the property right before Year 15 to raise the price the nonprofit has to pay. If a refinance happened in that window, only the older debt counts.
Where the price actually comes from
The statute sets the floor for the tax protection. The right itself, its trigger, who holds it and any higher price, all come from the partnership agreement. Disputes over what “first refusal” requires (a bona fide third-party offer or not) are about the agreement’s language, so read it with counsel before you rely on any number here.
Timing
The right can be exercised only after the close of the compliance period. Work out that date in the compliance timeline.