LIHTC file review and affordable housing audits
Your state housing credit agency will read the tenant files on your Low-Income Housing Tax Credit property whether or not you are ready. We read them first.
What you need to know
The agency reports what it finds, corrected or not. Under 26 CFR 1.42-5, the agency files Form 8823, the noncompliance report, with the IRS within 45 days of the end of your correction period, the window it gives you to fix findings, and it reports the noncompliance whether or not you fixed it afterwards.
You do not choose the files. The agency selects tenant files and units at random, and site staff get no advance notice of which ones.
We attach the fix to every finding. For each item we name the rule behind it and the correction, ranked by what would reach a Form 8823.
Ready when you are
Talk with an auditor
What a LIHTC file review covers
In a LIHTC file review we test tenant eligibility documentation against Section 42 before your state housing credit agency does. We read a sample of your tenant files the way a monitoring agency reads them and hand back a written finding list.
The file review is the tenant eligibility half of an affordable housing audit. The financial statement audit is the other half.
Owners reach us at one of four moments:
- An agency visit is scheduled.
- The agency has sent a finding letter.
- An investor or lender wants the files checked before a closing.
- Lease-up is under way and the first credit year has not ended. The credit you can claim for the rest of the compliance period is limited by the applicable fraction, the share of the building that was low-income, at the end of that year, so those are the files to read first.
The first is the cheapest of the four.
What a LIHTC tenant file review checks
Initial certification at move-in.
The owner establishes initial eligibility at move-in, so with an incomplete move-in certification the unit is out of compliance from move-in until the file is corrected.
Income calculation.
Verified sources, the annualization method used, whether the household cleared the income limit in force on the certification date rather than today’s limit, and the verification level the owner documented and why.
Asset documentation.
What the owner verified, what the household self-certified, and whether the household’s assets were under the self-certification threshold in force on that date.
Gross rent and utility allowance.
Gross rent against the limit for that unit size and year, including the utility allowance in force at the time.
Student status.
Full-time student household rules and whichever exception the owner has documented.
Recertification history.
Whether any required annual certifications happened on time and whether the paperwork for each one is in the file.
Layered units.
Where a unit also has HUD rental assistance, we test the household under the income definition for that program and record which one we used.
How a LIHTC file review works
Scope call.
Number of properties, unit count, which years, whether an agency visit or a finding letter is already in play, and which HOTMA date your state agency set.Quote.
Priced against unit count, property count and years in scope, read from your rent roll.Sample selection.
We pull units from the rent roll at random, across buildings and unit sizes, and site staff learn which files only when we ask for them.File testing.
Certification by certification, against the income and rent limits in force on each certification date.Finding list.
Unit by unit, ranked so your team fixes first the items the agency would report on Form 8823.Correction support.
We stay with your team while the files are fixed, and re-test what changed.
What happens after a Form 8823 is filed
When the agency files an out-of-compliance Form 8823, the IRS can write to the owner, exclude nonqualified units from the credit calculation, and warn that previously claimed credits may be recaptured.
Correcting the problem does not erase it. If you correct it after the correction period but within three years, the agency files a back-in-compliance Form 8823. The compliance period is 15 years.
What the 25% tax-exempt bond test means for 4% LIHTC deals
In P.L. 119-21, signed July 4, 2025, Congress added a 25% route alongside the 50% route for 4% credits. A building is eligible under the 25% route when:
- 01
at least 25% of the aggregate basis of the building and its land is financed with qualifying tax-exempt bonds,
- 02
post-2025 bond issues finance at least 5% of that basis, and
- 03
the building is placed in service in a tax year beginning after 2025.
Both routes are in force: an owner whose deal is financed under the 50% route still qualifies, and an owner using the 25% route must also meet the post-2025 issuance and placed-in-service conditions. The IRS restated the wording on May 29, 2026. Tell us which route your deal used and we will tell you what changes at cost certification.
Affordable housing accounting before the audit
If your ledger is not ready, our bookkeeping team prepares it first as a separate affordable housing accounting engagement. They build the trial balance and the statements from your records, and we scope and price the audit on its own afterwards. We cannot audit books we wrote ourselves. Owners who arrive with bank statements and no financials get the preparation quoted separately.
What drives the cost
Pricing is fixed against the file, not billed by the hour. These are the inputs:
- 01Number of properties and units in scope
- 02Number of years under review, since catch-up work across several years carries more risk than a current year
- 03Whether the engagement is a LIHTC file review, a financial statement audit, or both
- 04Whether an agency visit or a finding letter is already in play, which sets the deadline
- 05Condition of the records at handover
Send the rent roll and your most recent agency correspondence and we will price it before you sign.
Related audit services
Real estate and HUD audits
Single audit services
Financial statement audits
Construction audits
Non-profit audits
General information, not advice for your circumstances. What Section 42 requires of your property depends on your allocation, your state agency and your placed-in-service dates, so speak to a CPA before acting on it.
Book a LIHTC file review
Owners call us before an agency visit or after a finding letter. The earlier you call, the more time your team has to fix what we find. We also offer the review annually on a fixed sample, between agency visits.
Send the rent roll, the years in scope and anything the agency has already sent you. We will tell you what the review covers and what it costs before you sign.
Contact
Connect with Dimov Audit
Our dedicated team is ready to assist you on your path to financial success.
24 Mercer St, 2nd Floor, Suite 214
New York, NY 10013
United States
Reviewed by George Dimov, CPA. Dimov Audit audits affordable housing and HUD-assisted projects for owners, managers and agents across all 50 states. Profile
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