LIHTC compliance is two different jobs in one. There's annual compliance — the state HFA monitoring review, the IRS 8823 risk — and there's the exit compliance you need at year 15. Most PMS handle the first job in a half-hearted way and don't handle the second at all. The cost of that gap is real: an 8823 finding can trigger credit recapture, and a botched year-15 exit can sink a refinance.
This is what LIHTC compliance actually requires the software to do.
What IRS form 8823 actually catches
The 8823 is the form the state HFA files with the IRS when a LIHTC property is non-compliant. It triggers IRS review; in severe cases it triggers credit recapture. Most owners never see the 8823 because the state catches the issue before it files — but the threshold for filing is lower than people think, and the categories are specific.
The 8823 trigger taxonomy
- Over-income at recertification. A household certified at one income tier whose income at recertification puts them over the LIHTC limit. The treatment depends on the next-available-unit rule and the household's prior status, but if the recertification was wrong or late, it's a finding.
- Family size violations. A unit set aside for a specific household size occupied by a household of a different size that didn't meet the certification rules.
- AMI errors. The unit was set aside at 60% AMI but the rent or income limit was applied at 80% (or vice versa). This is the most common error and the easiest one for software to prevent — if the software tracks AMI at the unit level with effective dates.
- Recapture math. The math behind the recapture amount when a unit goes out of compliance — what credits are lost, what the recapture period is, and how the bond financing structure changes the calculation.
- Vacant unit rule. A unit held vacant beyond the reasonable period without good-faith leasing efforts.
- Income limit application. Applied the wrong income limit at certification — usually the prior year's limit on a certification effective after the new limit took effect.
The pattern across these triggers: every single one comes down to date discipline. The right limit at the right date applied to the right unit. Software either tracks that with full effective-dated history or it doesn't.
Year-15 exit: what you actually need
Year 15 is when the 15-year compliance period ends, the investor exits, and the asset gets refinanced or sold. The compliance file has to support the exit. What that means in practice:
- Unit-by-unit set-aside history with effective dates. Every unit, every certification, every set-aside, with the effective date of each change. A unit that moved from 60% to 80% AMI in year 7 needs that effective date recorded.
- TIC trail. Tenant Income Certifications going back to year 1 of compliance. Paper TIC binders fail this; the binder is intact but the audit trail is incomplete.
- Income limit application proof. For each certification, which year's income limit was applied. Auditors check that the limit matches the effective date of the certification.
- Vacancy log. Every vacancy, with the dates and the leasing efforts.
- Recapture-period documentation. If the property has any units that were non-compliant and brought back into compliance, the timeline has to be defensible.
The properties that fail year-15 exit fail because the data exists in three places — the PMS, the binder, the asset manager's spreadsheet — and they don't reconcile. The exit auditor finds gaps. The investor's counsel finds the gaps. The refinance closes 90 days late or doesn't close at all.
Why "current AMI" isn't enough
Most PMS track the current AMI tier for a unit. They don't track the effective-dated history. The difference shows up on audit: a state HFA monitor asks for the AMI history of a specific unit between year 4 and year 9. If the software shows only the current value, the answer is "let me check the binder," and the binder pulls become the audit.
The fix is structural. AMI tier is not a unit attribute — it's a time-indexed series. Same with set-aside, same with rent limit, same with utility allowance. Every change has an effective date, every history is queryable.
State QAP cycle prep: real differences
Every state HFA runs its own Qualified Allocation Plan and its own monitoring conventions. The differences:
- Texas (TDHCA). Annual unit file review with sampling; strict on the 8823 categories and the on-site file completeness. The monitoring uses TDHCA's Compliance Workshop manual.
- California (CDLAC / CTCAC). CTCAC monitors on a roughly triennial cycle for most properties; CDLAC reviews bond-financed properties. The CTCAC Compliance Manual sets the file requirements.
- Florida (FHFC). Annual self-certification plus on-site monitoring; FHFC's Compliance Department publishes the file checklist.
The state HFA monitoring requirements differ but the software requirement converges: AMI history, certification trail, vacancy log, set-aside trail, effective-dated.
The ExactEstate mechanism
Automated TIC and recertifications, with the certification effective-dating tracked at the field level. Every income limit, every AMI tier, every set-aside is stored as a time-indexed series. Auto-generated TIC packets pull the right limit for the certification's effective date, not the current limit. The audit log answers state HFA monitoring queries in seconds, not in binder pulls.
For year-15 exit, the audit module reconstructs the full unit history on demand. The investor's counsel asks for the AMI history of unit 4B; the answer comes back as a date-sequenced table with the certifications attached.
Mirroring what works: the 50058 audit pattern
The same pre-flight audit pattern that catches TRACS errors runs on LIHTC certifications. If a recertification would put a unit out of compliance — over-income, wrong AMI applied, missing TIC field — the audit fires before the certification saves. The 8823 risk drops because the system catches the error before the cycle closes.
What ExactEstate ships, in plain English
Lightweight LIHTC depth is the AppFolio/Buildium problem — they're not built for layered LIHTC + Section 8 + HOME. ExactEstate is. The mechanism is the same one we use for HUD: automated TIC and recertifications, compliance checkpoints that block move-ins until inspections are complete, and the audit log that answers HUD or state HFA queries from the database.
Run a LIHTC audit on your portfolio
Send a sanitized unit file and we'll run the audit against it — 8823 risk flags, AMI history gaps, year-15 readiness gaps. Book a 20-minute slot and we'll walk you through what we find.
Related reading
- The 50058 Error Audit — the same pattern, applied to LIHTC
- HOTMA Vendor Scorecard — how the LIHTC vendors handle the HUD overlap
Sources
- IRS Form 8823 — categories of non-compliance and filing thresholds.
- IRS Section 42 — the LIHTC statutory framework, recapture math, year-15 exit rules.
- Treasury Regulation 1.42 — the compliance period, set-aside requirements, next-available-unit rule.
- State HFA compliance manuals — TDHCA, CTCAC, FHFC, and NCSHA model compliance recommendations.
- HUD HOTMA PIH Notice 2026-15 — income calculation interactions with LIHTC for layered properties.
About the author — ExactEstate compliance team. We built the LIHTC module because year-15 exits are not a place for spreadsheets.
From the HOTMA & PHA compliance cluster
Matt Hoskins
Matt Hoskins is CEO of ExactEstate, a property management platform built by property managers for property managers. With a background in both property management and engineering, he focuses on intuitive software that simplifies workflows and supports the future of affordable housing.
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