Summary of HB 5806 (Michigan, 2025-2026)
Scope: This bill amends the Michigan Income Tax Act of 1967 to create housing opportunity tax credits and provides rules for claiming, adapting, and recapturing these credits. It ties its enactment to passage of companion bills HB 5805 and HB 5807.
Purpose and intent
- Establish a new housing opportunity tax credit (HOTC) program linked to allocations issued by the Michigan State Housing Development Authority (MSHDA) under the federal Low-Income Housing Tax Credit framework.
- Allow qualified taxpayers who own or directly/indirectly own an interest in a qualified housing project to claim credits against Michigan personal income tax.
- Align state credits with federal HOLC/LITH credit activity (recapture mechanics and carryforwards) to avoid duplicative benefits and ensure consistency with federal tax events.
Key provisions and changes
1) Creation of housing opportunity tax credits (three sections: 279, 679, and 821)
- Effective for tax years beginning on or after January 1, 2027.
- Eligible taxpayers: Owners of a qualified housing project with an allocation statement from MSHDA (section 22e of the State Housing Development Authority Act). Includes direct or indirect ownership interests via flow-through entities.
- Credit amount: The credit equals the lesser of:
- The amount stated in the allocation statement for the tax year, or
- The taxpayer’s allocated share for the tax year (subject to section-specific rules).
- Documentation: Taxpayers must attach the allocation statement (or reservation letter if the allocation statement has not yet been issued) to the Michigan income tax return on which the credit is claimed.
2) Handling when allocation statements are pending or differ from reservations
- If final cost certification and allocation statement have not been issued by year-end, taxpayers may claim the amount in the reservation letter.
- If/when the allocation statement is issued and its amount differs from the reservation letter, the taxpayer must file an amended return with the correct amount and attach the allocation statement.
- If the allocation statement is not issued by year-end, the taxpayer may defer the HOTC to the year in which the allocation statement is issued.
3) Federal credit recapture or disallowance mechanics
- If any portion of the federal Low-Income Housing Tax Credit (LIHTC) claimed for the project must be recaptured or is disallowed, the Michigan HOTC for the same project must be recaptured in the same tax year, in proportion to the federal recapture/disallowance.
- Recaptured credits must be added back to the taxpayer’s Michigan tax liability and reported on the return.
4) Flow-through entities
- Members of a flow-through entity allocated the HOTC may claim their allocated share against their Michigan tax liability.
- If a flow-through entity allocates the HOTC to its members, the entity itself cannot claim the credit for that allocated share.
5) Carryforwards
- Any HOTC that exceeds the taxpayer’s tax liability in a given year may be carried forward for up to 10 years or until fully used.
- Carryforwards can be used to offset future tax liability, and if there is an unused carryforward, it can be applied to reduce the amount otherwise subject to recapture or the carryforward amount.
6) Definitions (section 5)
- Aligns defined terms with those in MSHDA and the LIHTC framework: allocation statement, award, LIHTC, owner, qualified project, and authority (MSHDA).
Enacting provisions and conditions
- The act does not take effect unless both HB 5805 and HB 5807 are enacted into law (the “tie” requirements).
Timelines and procedural notes
- Effective date for credits: tax years beginning on/after January 1, 2027.
- Initial filing will require attaching allocation statements or reservation letters.
- Amended returns may be required if allocation amounts differ from reservations.
- Recapture and carryforward rules mirror federal LIHTC timing, with Michigan-specific alignment.
Potential impact
- Provides a Michigan-specific credit to complement federal LIHTC projects, potentially increasing after-tax incentives for developers and investors in affordable housing.
- Creates new compliance obligations for owners and flow-through entities to track allocation statements, reservation letters, and potential recapture events.
- Aims to ensure consistency between state and federal tax treatment of LIHTC projects and to support continued investment in affordable housing through the state.
Sponsorship and status
- Primary sponsor: Rep. Kristian Grant; co-sponsors: Rep. Stephen Wooden, Rep. Joe Aragona.
- Introduced and referred to Regulatory Reform Committee (as of the latest actions).
- Co-sponsors support and tie-bar with HB 5805 and HB 5807.
