Glossary

Applicable Fraction

The percentage of a LIHTC building treated as low-income housing for credit purposes, calculated as the lesser of the unit fraction (low-income units divided by total residential units) and the floor-space fraction (low-income square footage divided by total residential square footage).

Using the lesser of the two component fractions prevents a developer from inflating the applicable fraction by designating a disproportionate number of small, low-cost units as the low-income set-aside while housing market-rate tenants in larger units -- the floor-space test forces the affordable share of square footage to keep pace with the affordable share of unit count, and vice versa. In a fully affordable property both fractions equal 100% and the distinction is immaterial, but in mixed-income developments -- an increasingly common structure as sponsors blend LIHTC with market-rate units to improve project economics -- the applicable fraction directly caps how much of the building's eligible basis can ever generate credit, regardless of how the minimum set-aside election is structured. Like qualified basis itself, the applicable fraction is not fixed permanently at closing; if the mix of low-income versus market-rate units changes during the compliance period in a way that reduces the fraction, qualified basis falls correspondingly and can trigger recapture on the reduced portion.