Credit Disallowance and Recapture

IRS IRC § 42 Audit Technique Guide — Part I (Introduction and Pre-Contact Analysis) · 2026 edition · updated 2026-07-29 · United States

The credit may be disallowed (in part or in whole). Not only is the credit disallowed in the year of a noncompliance event, but if the qualified basis is less at the end of that taxable year than the qualified basis at the close of the preceding taxable year, the taxpayer is subject to the credit

recapture provisions under IRC §42(j). The recapture amount is computed as a percentage of the credit claimed in prior years plus interest. The recapture percentage is based on the year within the 15-year compliance period that the noncompliance occurred.

No credit is allowable for the year in which a taxpayer disposes of a building (or interest therein) and the recapture provisions are also applicable unless, under IRC §42(j) (6), it is reasonably expected that the new owner will continue to operate the building as a qualified low-income building for the remainder of the 15-year compliance period.

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▸Contents — IRS IRC § 42 Audit Technique Guide — Part I (Introduction and Pre-Contact Analysis)

IRS IRC § 42 Audit Technique Guide — Part I (Introduction and Pre-Contact Analysis)

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