By Frank Perdue
Audit Manager, Sherbert CPA, PC
In March 2025, the North Carolina General Assembly introduced North Carolina House Bill 467, titled “Reenact Low-Income Housing Tax Credits” (the “Bill”), which aims to reenact and extend tax credits to encourage the development and preservation of affordable housing for low-income residents.
The Bill seeks to reenact North Carolina’s state Low-Income Housing Tax Credits (LIHTC) that expired on January1, 2015 (expiration due to sunset under North Carolina General Statutes section105-129.45, before the effects of the Bill). These credits incentivize developers and investors to build or rehabilitate housing for low-income individuals and families.
The Bill amends Chapter 105 of the North Carolina General Statutes, specifically sections 105-129.40 through105-129.45, which outline the structure and eligibility for these tax credits.
As Currently Drafted
A taxpayer who is allocated a federal LIHTC under section 42 of the Internal Revenue Code (IRC) to construct or substantially rehabilitate a qualified North Carolina low-income housing development, as defined in the Bill, is allowed a credit equal to a percentage of the development’s qualified basis, as determined pursuant to section 42 of the IRC. Qualified basis is calculated based on the information contained in the carryover allocation and is not recalculated to reflect subsequent increases or decreases. No credit is allowed for a development that uses tax-exempt bond financing. The Bill includes a table that specifies what types of housing developments are qualified North Carolina low-income housing developments. For each of those types of housing developments, that table also includes the percentage of basis for which a credit is allowed.
When a taxpayer to whom a federal LIHTC is allocated submits to The North Carolina Housing Finance Agency (the “Housing Finance Agency”) a request to receive a carryover allocation for that credit, the taxpayer must elect a method of receiving the state LIHTC by either 1) A direct tax refund; or 2) A loan generated by transferring the credit to the Housing Finance Agency. Neither a direct tax refund nor a loan received as the result of the transfer of the credit is considered taxable income for North Carolina purposes. The Bill provides further details on each of these elections.
The credit under the Bill will sunset on January 1, 2030. The sunset applies to developments to which federal credits are allocated on or after January 1, 2030
Status
The Bill was filed with the House on March 20, 2025 in draft form and passed the first reading in the House on March 24, 2025. As of the date of this article, its last action was being referred to the Committee on Rules, Calendar, and Operations of the House on March 24, 2025. If the Bill passes, it will provide developers of projects in North Carolina with another option to fund those projects. The Sherbert Group will continue to monitor the Bill and will share updates as they become available.
To contact the reporter on this story: Frank Perdue at fperdue@sherbertcpa.com.
To discuss this or any other upcoming tax changes with the Sherbert Group, Contact: Bill Sherbert at bsherbert@sherbertgroup.com.