Glossary

Eligible Basis

The subset of a LIHTC project's total development cost -- generally the depreciable cost of the building and its improvements -- that the tax code permits to generate Low-Income Housing Tax Credits, before any basis boost or application of the applicable fraction.

Eligible basis is built from the depreciable costs of construction or rehabilitation: hard construction costs, contractor overhead and profit, and capitalized soft costs such as architecture, engineering, permitting, and construction-period interest. It excludes land, which is never depreciable, most permanent financing costs, operating and replacement reserves, and, for new construction, most off-site improvement costs -- meaning a project's total development cost and its eligible basis are routinely millions of dollars apart on an otherwise ordinary deal. Where a project sits in a HUD-designated Qualified Census Tract or Difficult Development Area, the statute permits eligible basis to be increased by up to 30% (the 'basis boost') before the applicable fraction and applicable percentage are applied, directly increasing the credit and the equity a deal can raise without the developer spending an additional dollar. Because eligible basis is the first of several sequential calculations -- eligible basis, boosted if applicable, times the applicable fraction produces qualified basis, which is then multiplied by the applicable percentage to yield the annual credit -- an error in classifying a cost as eligible or ineligible compounds through the entire credit calculation.