By Peter G. Pupke, Esq., Checkpoint News
Michigan has enacted legislation that amends the State Housing Development Authority Act of 1966 to create the “Housing Opportunity Tax Credit” program. The program, administered by the Michigan State Housing Development Authority (MSHDA), provides a nonrefundable tax credit against the state’s personal and corporate income taxes, as well as the insurance premiums tax, for the development of qualified low-income housing projects. (L. 2026, S966 (P.A. 23), effective 07/21/2026, operative as shown.)
Credit cap and amount
For the 2027 award cycle, the total base annual amount of credits available for reservation is $42 million. For each award cycle after 2027, this base amount is adjusted annually for inflation based on the U.S. Consumer Price Index for all urban consumers. The total “award cycle cap” for any given year is the sum of the base annual amount, any unused credit amounts from the preceding award cycle, and any credits that were recaptured or otherwise returned to the authority. The annual credit awarded for a specific project cannot exceed the lesser of the amount necessary for the project’s financial feasibility or the “adjusted annual federal credit amount,” which is defined as one-sixth of the aggregate federal low-income housing tax credit allocated to the project over its federal credit period.
Application, allocation, and set-asides
The MSHDA will begin accepting applications for award cycles starting on and after January 1, 2027. The bill establishes specific set-asides from the annual credit cap: not less than 25% for new construction “4% qualified projects”; not less than 25% for preservation “4% qualified projects”; and up to 50% for any qualified project at MSHDA’s discretion. A “4% qualified project” is a project that is eligible for the federal low-income housing tax credit under IRC § 42(h)(4) and is financed with certain tax-exempt bonds. Additionally, to the extent sufficient applications are received, at least 30% of the credits available under these set-asides must be designated for projects located in rural areas. In its review process, the MSHDA will give preference to qualified projects that use building components manufactured in Michigan.
Flexible allocation for flow-through entities
An owner of a qualified project that is a flow-through entity (such as an S corporation, partnership, LLC, or trust) may allocate the housing opportunity tax credit to some or all of its members. The bill provides significant flexibility, allowing the allocation to be made in any manner agreed to by the members, regardless of how any federal credits are allocated, whether the allocation has substantial economic effect under IRC § 704(b), or whether the recipient member is deemed a partner for federal income tax purposes. A member receiving an allocation may further assign its interest in the flow-through entity, with the assignee subsequently being eligible for an allocation of the credits.
Credit period and claiming credit
The credit period is six calendar years, beginning with the calendar year in which a building that is part of a qualified project is placed in service. The project owner claims the annual credit amount against the applicable tax for the owner’s tax year that begins with or within that calendar year. For members of a flow-through entity who are allocated a credit, the credit is claimed for the member’s tax year that begins with or within the calendar year in which the allocation was made. Upon a project’s completion, the owner must obtain an “eligibility statement” from the MSHDA, which certifies the project and specifies the amount of the housing opportunity tax credit that may be claimed each year of the credit period.
Recapture and reporting requirements
The housing opportunity tax credit is subject to recapture if certain events occur. The owner of a project awarded a credit must report any recapture event to the Department of Treasury and the MSHDA in the same manner as is required for the federal low-income housing tax credit. A “designated reporter,” who is the project owner or a person designated by the owner, must provide an annual allocation report to the Treasury containing information on each person allocated a credit, the amount of the credit, and other required information.
Take your tax and accounting research to the next level with Checkpoint Edge and CoCounsel. Get instant access to AI-assisted research, expert-approved answers, and cutting-edge tools like Advisory Maps and State Charts. Try it today and transform the way you work! Subscribe now and discover a smarter way to find answers.
