LIHTC Compliance Renovation Guide

LIHTC properties must maintain the applicable fraction — both the unit fraction and floor-space fraction — throughout the compliance period. Taking units offline for renovation reduces available units and can trigger noncompliance if you drop below the minimum set-aside. Plan renovations in phases that keep enough units in service to maintain your elected percentage (typically 40/60 or 20/50). Document every unit's status monthly during renovation.

Capital improvements that extend useful life or add functionality can be added to qualified basis through a cost-segregation study — potentially generating additional credits. Eligible items include: new HVAC systems, roof replacement, plumbing upgrades, electrical upgrades, kitchen and bathroom renovations, accessibility modifications, and energy-efficiency improvements. Cosmetic items (paint, carpet, minor repairs) are typically expensed, not capitalized. Work with your tax advisor to classify every line item correctly.

Maintain a renovation compliance file for each building: unit status tracker (online/offline dates), tenant relocation records with proper notices, rent rolls showing no income limit violations, contractor certifications, Davis-Bacon wage documentation if applicable, and before/after photos of every unit. State HFAs audit renovation projects more frequently than stabilized properties — incomplete documentation is the number-one audit finding.

LIHTC rules require specific notice periods and relocation assistance when displacing tenants for renovation. Temporary relocations within the property are preferred — they avoid Uniform Relocation Act requirements that apply to permanent moves. Re-certify household income upon return to the renovated unit. If rents increase post-renovation, verify that new rents remain within the applicable LIHTC limits for the area median income tier.

Many Houston LIHTC properties are approaching or past Year 15, when the initial compliance period ends and extended use restrictions begin. Renovation at this stage often coincides with resyndication — securing a new allocation of credits funded by the capital improvement scope. Tell Projects works with syndicators and HFAs on renovation scopes that satisfy new credit requirements while addressing deferred maintenance. We understand the compliance documentation that lenders and investors require at every stage.