LIHTC Carryover Allocation and Tax Exempt Bond Tests

Why Early-Stage LIHTC Audits Matter

Keep your projects and credits secure and moving forward

Carryover audits verify that your project meets the LIHTC 10% carryover test—an early, time-sensitive milestone that preserves tax credits for developments across Louisiana, Mississippi, Arkansas, Alabama, Tennessee, Oklahoma, and Texas. From Monroe to Mid City Baton Rouge, New Orleans CBD and Gentilly, Jackson’s Fondren, Little Rock’s River Market, Dallas Oak Cliff, and Houston’s East End, we perform affordable housing carryover audits that align with state agency checklists and investor expectations. Our niche focus means fewer surprises and faster closings.

Our Role In Early-Stage Audits

What is a LIHTC Carryover (10% Test)?

The 10% test confirms that your ownership entity has incurred more than 10% of reasonably expected basis within the required timeframe (generally within 12 months of the carryover allocation). Lenders, investors, and Housing Finance Agencies (HFAs) rely on a CPA’s independent report to validate aggregate basis, timing, and documentation. Missing the window risks forfeiting your allocation and delaying community housing outcomes.

What We Examine

Aggregate basis, documentation, and timing

We tailor procedures to meet your state’s Qualified Allocation Plan (QAP) and investor requirements while keeping the process efficient for your team.

• Aggregate basis testing: land improvements, land, architectural/engineering, surveys, environmental, permits/fees, initial pre-construction services, and other depreciable costs.
• Cutoff and timing: invoice dating, services performed, and payment evidence within the test period, subject to accounting method used by the entity.
• Basis analysis: preliminary reconciliation of total reasonably expected basis versus costs incurred to date, with a clear bridge to the 10% threshold.
• Documentation: budget, contracts, pay apps, general ledger detail, and bank statements.

 Add-On Compliance

The 95/5 Test (Good vs. Bad Costs)

State agencies and investors often request a concurrent “95/5 test” to confirm that at least 95% of net tax exempt bond proceeds are used to finance “Good/Qualified” costs and no more than 5% are used to finance “Bad/Non-Qualified” costs. We classify costs according to applicable guidance—construction, A&E, acquisition of non-depreciable land, and qualifying soft costs typically “Good”;  related party costs, reserves, financing costs exceeding bond thresholds, and other non-qualifying items typically “Bad.”

Our report provides:

• A line-item cost map to Good/Bad categories tied to your chart of accounts.
• A summary schedule showing percentages that clearly exceed the 96%/≤5% standards.
• Practical recommendations to reclassify miscoded items before bond counsel or investor review.

 Add-On Compliance

Bond Deals: The 50% Test for 4% LIHTC

For tax-exempt bond transactions seeking 4% credits, the “50% test” requires that at least 50% of the aggregate basis of the building, depreciable basis and land is financed with tax-exempt bonds. We coordinate with project managers and development team to:

• Reconcile aggregate basis to bond-financed costs and timing of draws.
• Verify allocations across phases and buildings if closing in stages.

Our Process & Timeline

Speed and accuracy matter when application clocks are ticking. Little & Associates follows a predictable path that keeps your team moving:

1. Pre-planning call: confirm test windows, cost ledgers, and state templates.
2. Document request: targeted prepared by client list for general ledger, pay apps, invoices, banking, contracts, and budgets.
3. Fieldwork: remote procedures to validate aggregate basis, documentation, and timing.
4. Draft report & management discussion: resolve questions early.
5. Final issuance: CPA report and schedules formatted for your HFA, investor, and bond counsel.

We build calendars around allocation dates or closing deadline so that 10% carryover, 95/5, and 50% test are delivered well before deadlines.

Regional Insight That Improves Feasibility

Gulf South construction and insurance dynamics—whether you’re building in Shreveport’s Highland, Baton Rouge near LSU Medical, Jackson’s Fondren, Little Rock’s downtown corridors, or fast-growing suburbs of Dallas and Houston—affect timing and cost eligibility. We pressure-test your assumptions, help right-size contingencies, and coordinate with lenders so your tests reflect on-the-ground realities, not wishful models.