Leaving the LIHTC program

A property "leaves the program" when its Section 42 bargain ends — the owner took thirty years of investor tax credits in exchange for rent and income restrictions, and one of a few doors has closed that bargain, early or on schedule.

The exits:

1. Qualified contract — after year 14, the owner invokes the statutory process; if the state agency can't produce a buyer at the formula price within a year, the restrictions dissolve. See qualified contract.
2. Foreclosure or deed-in-lieu — extended use terminates when a lender takes the property (unless the foreclosure was arranged to shed restrictions, which the IRS can unwind).
3. The clock runs out — extended use ends at year 30 or the longer state-agreed period, and the owner doesn't re-enter the program.
4. The mundane exits: demolition, casualty, condominium conversion — and the 1987–89 allocations that predate extended use entirely and finished at year 15.

Whatever the door, federal law imposes a three-year decontrol period: existing tenants can't be evicted without cause or charged above-restricted rents. Then the property is an ordinary market-rate asset — units reprice on turnover, and it trades at conventional cap rates. This is the "preservation loss" the affordable-housing industry organizes to prevent.

One important nuance: only the LIHTC bargain ends. A Section 8 HAP contract, USDA loan restrictions, or a HOME covenant on the same property survives independently.

In HUD's public LIHTC database, exited properties carry a NONPROG flag — more than 11,000 properties nationally. Analyses that ignore the flag overstate the affordable stock and the coming expiration waves; ours excludes flagged properties from event counts (a property that already left has no year-15 or year-30 event coming) while keeping them visible as history.