America's Property Tax Advisor

Section 42 Tax Credits Do Not Constitute Actual Income


The Georgia Supreme Court handed down a ruling against Lowndes County tax officials that may have a widespread effect on the state’s low-income housing market.


The court reversed a lower court ruling involving Low Income Housing Tax Credits (“LIHTCs” or “Section 42 Tax Credits”) and how they should be valued in the calculation of property tax values. The appellants were eight partnerships which built apartment complexes in Lowndes County.


The Case


In Heron Lake II Apartments LP, et al v. Lowndes County Board of Tax Assessors, the court ruled that federal and state LIHTCs do not constitute “actual income” when calculating ad valorem real property taxes. Rather, when claimed by an investor or owner of an interest in a Section 42 property, LIHTCs merely reduce that person’s overall tax burden.


National Precedent


Justices pointed to the U.S Supreme Court’s decision in Randall v. Loftsgaarden. In Randall, the Court considered whether federal tax benefits received by owners of certain securities could be considered “income” under securities laws.


The nation’s highest court concluded that a security owner’s receipt of federal tax benefits, in the form of tax deductions and tax credits, did not constitute “income” under any reasonable definition.


The Georgia Supreme Court decision states, “Here, as in Randall, although the tax credits at issue do benefit investors by allowing them to reduce their tax liabilities, they do not constitute “income” for those individuals.”