INSTRUCTIONS                               STATE OF HAWAII — DEPARTMENT OF TAXATION
FORM N-586
(REV. 2023)                        INSTRUCTIONS FOR FORM N-586
                           TAX CREDIT FOR LOW-INCOME HOUSING
                                                shareholders,  or  beneficiaries.  Attach  a      income housing building or a qualified low-
General Instructions                            copy of federal Form 8586 to the entity’s         income housing project under section 42.
(Section references  are to the Internal        income tax return.
Revenue  Code (IRC) unless otherwise                                                              If a subaward under section 1602 of 
noted.)                                         Partnership investors now have the flexibility    the American Recovery and Reinvestment 
                                                of allocating the State low-income housing        Act  of  2009,  Public  Law  111-5,  has  been 
The Hawaii  low-income  housing  tax            tax credit among its partners without regard      issued  for  a  qualified  low-income  building 
credit  allowed  under  section  235-110.8,     to the partners’ proportionate  interests in      placed in service after December 31, 2011, 
Hawaii Revised Statutes  (HRS),  is  based      the partnership for taxable years beginning       the amount of the low-income housing tax 
upon the tax credit allowed  for federal in-    after December 31, 1999.                          credit  that may be  claimed  by a taxpayer 
come tax purposes under section 42.  For                                                          shall be equal to fifty percent of the amount 
property placed in service on or after July     Insurers.—Complete  Part  I  to  figure  the      of the federal  low-income  housing  tax 
1, 2005, the Hawaii low-income tax credit       credit to carry to Form 314, Annual Premium       credit that would have been allocated  to 
is 50% of the allowable federal low-income      Tax Return.  Attach a copy of federal Form        the qualified low-income building pursuant 
housing tax credit (30% for property placed     8586 to Form 314.                                 to section 42(b) had a subaward not been 
in service before July 1, 2005).  A taxpayer    Caution:  No credit may be claimed on any         awarded with respect to the qualified low-
may claim this credit whether or not the tax-   building for which there has been allowed         income building.
payer claims a federal low-income housing       any relief from the passive loss rules under 
tax credit.                                     section 502 of the Tax Reform Act of 1986.
Effective January 1, 2017, the time over                                                          The Hawaii Housing Finance and Devel-
which  the State tax credit is taken was        Low-Income Housing Tax                            opment Corporation  (HHFDC), under the 
shortened from ten years to five years and      Credit                                            Department of Business, Economic Devel-
applies to buildings that are awarded low-                                                        opment and Tourism, is designated as the 
income housing tax credits after December       Each taxpayer subject to  the tax  im-            State housing  credit agency  to carry out 
31, 2016.                                       posed  by  chapter  235,  HRS,  who  files  a     section 42(h) (with respect to limitation on 
                                                net income tax return for  a taxable year         aggregate credit allowable with respect to 
Taxpayers  must  file  federal  Form  8609      may claim a low-income housing tax credit         projects located in the State).  As the State 
with their Hawaii income tax return to claim    against the taxpayer’s  net income tax  li-       housing credit agency, the corporation shall 
the credit, but if the taxpayer has not yet re- ability.  The amount of the credit shall  be      determine the eligible  basis for a quali-
ceived the Form 8609, the credit amount set     deductible from the taxpayer’s net income         fied low-income building, make the alloca      -
forth in the carryover allocation or 42(m) let- tax liability, if any, imposed by chapter 235,    tion of housing  credit dollar  amounts with 
ter issued to the qualified low-income hous-    HRS, for the taxable year in which the cred-      the State, and determine the portion of the 
ing project can be used until Form 8609 is      it is properly claimed on a timely basis.  A      State’s housing credit ceiling set aside for 
received, in which case the taxpayer must       credit under this  section may  be claimed        projects  involving  qualified  nonprofit  orga-
amend the tax return to include the Form        whether or not the taxpayer claims a fed-         nizations.
8609,  and  if  necessary,  adjust  the  credit eral low-income housing tax credit pursuant 
amount claimed on an amended return.            to section 42.                                    All claims  for  allocation of  the  low-in-
                                                                                                  come housing  credit under  section 235-
Note:  A taxpayer does not have to claim        Effective  July  1,  2005,  the  low-income       110.8, HRS, shall be filed with the HHFDC 
the federal low-income housing tax credit  to   housing tax credit shall be fifty percent of      at 677 Queen St., Suite 300, Honolulu, HI  
claim the State tax credit, but federal Form    the applicable  percentage  of the quali-         96813.    The  HHFDC  shall  determine  the 
8586 must  be completed and attached to         fied  basis  of  each  building  located  in  Ha- amount of the credit allocation, if necessary, 
your Hawaii  return to claim  the State tax     waii.  Applicable percentage shall be calcu-      and return the claim to the taxpayer.  The 
credit, even if you are not required to attach  lated as provided in section 42(b).               taxpayer shall file a credit allocation form is-
it to your federal return.                                                                        sued by the HHFDC with the taxpayer’s tax 
                                                The credit allowed shall be claimed 
Purpose of Form.  Owners of residen-            against net income tax liability for the tax-     return with the Department of Taxation.
tial rental  buildings  providing  low-income   able year. For the purpose of deducting this 
housing must use Form N-586 to claim the        tax  credit,  net  income tax  liability  means   Low-Income Housing Tax 
low-income housing credit.                      net income tax liability reduced by all other     Credit Loan
                                                credits allowed the taxpayer under chapter 
The tax credit  does  not apply  to occu-       235, HRS.                                         In lieu of the low-income  housing tax 
pants of low-income housing units.                                                                credit,  the  taxpayer  owning  the  qualified 
                                                A tax credit which exceeds the taxpay-            low-income building placed in service after 
For more information, contact the De-           er’s income tax liability may be used as a        December 31, 2011, may make a request 
partment  of Taxation, Taxpayer  Services       credit against the taxpayer’s income tax li-      to the HHFDC for a loan.  If the taxpayer 
Branch  at  (808)  587-4242,  or  toll-free  at ability in subsequent years until exhausted.      elects to receive the loan, the taxpayer shall 
1-800-222-3229.                                 The deadline to claim the credit, including       not be eligible for the low-income housing 
Banks  and  other  financial  institu-          amended  claims, is 12 months after the           tax credit.
tions. –– Complete Parts I and II.  Attach      close of your taxable year.   You cannot 
a copy of federal Form 8586 to Form F-1.        claim the credit after the deadline.  Failure     Recapture of Credit
                                                to properly and timely claim the credit shall 
Partnerships, S  Corporations,  Estates         constitute a waiver of the right to claim the     There is a 15-year compliance period 
and  Trusts.—Complete  Part  I  to  figure      credit. A taxpayer may claim a credit only        during which the residential rental building 
the credit to pass through to the partners,     if the building or project is a qualified low-    must meet certain requirements.

FORM N-586 INSTRUCTIONS 
(REV. 2023)                                                                                                                            Page  2

Note: If the decrease in qualified basis is         2016 to Hawaii property placed in service         amount is more than zero, also enter it on 
because of a change in the amount for which         on or after January 1, 2017.                      Schedule CR in Column (c), line 25.
you  are  financially  at  risk  on  the  building, 
then you must first recalculate the amount           For  any  qualified  low-income  building 
of  credit  taken  in  prior  years  pursuant  to   that receives an allocation after December        Part III
section  42(k)  before  you  calculate  the         31, 2016, the amount of low-income hous-             To complete Part III of Form N-586 you 
recapture amount on this form.                      ing tax credits that may be claimed shall be:     will need copies of all the following feder-
                                                                                                      al forms that you have filed:   Form 8586, 
Generally, recapture applies if:                    ●                                                 Low-Income  Housing  Credit,    Form 8609        ,                                          For  the  first  five  years,  equal  to  the 
                                                     amount of the federal low-income hous-           Low-Income Housing Credit Allocation Cer-
●  You dispose of a building or an owner-            ing tax credits that have been allocated         tification, Form 8609-A   Annual Statement 
 ship interest in it;                                to the qualified low-income building pur -       for Low-Income Housing Credit, and     Form 
                                                     suant to section 42(b)  by the HHFDC             8611,  Recapture  of  Low-Income  Housing 
●                                -                   provided that, if in any year the aggre-         Credit.                                            There is a decrease in the qualified ba
 sis of the building from one year to the            gate amount of credits under  this sub-
 next; or                                            section would be such that it would ex-             Lines 1 through  7 —   If the tax credit 
●  The building no longer meets the mini-            ceed the amount of state credits allocat-        is recaptured from more than two buildings, 
 mum set-aside requirements of section               ed by the HHFDC for the qualified low-           attach a schedule and enter the totals in the 
 42(g)(1), the gross rent requirements of            income building, the credits allowed for         third column.
 section  42(g)(2), or the other require-            that year shall be limited to such amount 
 ments for the units which are set-aside.            necessary to bring the total of such state          If the tax credit recapture is only from a 
                                                     credits (including the current year state        flow-through entity (partnership, S corpora      -
Recapture does not apply if:                         credits) to the full amount of state cred-       tion, estate, or trust) skip lines 1-3 and go 
●  You disposed of the building or an own-           its allocated to the qualified low-income        to line 4.
 ership interest in it after July 30, 2008,          building by the HHFDC;                              Line  1 — Tax credit recapture.—
 and it is reasonably  expected that the            ●  For  the sixth year,  zero, except  that,  if  Section  42(j)(5)  partnerships  fill  in  line  7 
 building will continue to be operated as            and only if, the amount of credits allowed       also.   All  other  flow-through  entities  (part-
 a  qualified  low-income  building  for  the        for the first five years is less than the full   nerships, S corporations, estates, or trusts) 
 remainder of  the building’s compliance             amount of state credits allocated by the         enter the result here and on the appropri-
 period;                                             HHFDC  for  the  qualified  low-income           ate line of Schedule K of your respective 
●  You disposed of an ownership interest in          building, an amount necessary to bring           return.  Enter each recipient’s share on the 
 a building that you held through an elect-          the amount of the state credits to the full      appropriate line of Schedule K-1.
 ing large partnership;                              amount allocated by the corporation for             Line 2 — Appropriate credit percent-
                                                     the qualified low-income building; and           age.—Enter 30% if the property was placed 
●                                                                                                     in service before July 1, 2005.  Enter 50%         The decrease in qualified basis does not 
 exceed  the  additions  to  qualified  basis       ●  For any remaining years, zero.
                                                                                                      if the property was placed in service on or 
 for which credits were allowable in years          Line 7. Total New Credit Claimed — This           after July 1, 2005.
 after the year the building was placed in          is the amount of the credit being  claimed 
 service;                                           in the current year. Enter this amount on            Lines  5 and  6 — Interest.—Compute 
                                                                                                      the  interest  separately for  each  prior tax 
●  You correct a noncompliance  within a            Schedule CR in line 25, Column (a).
                                                                                                      year using a rate of 8% (.00667 monthly) for 
 reasonable period after it is discovered                                                             the period beginning on the due date for fil-
 or should have been discovered.  (How-             Part II                                           ing the original return for each prior year in-
 ever, recapture applies if any vacant unit                                                           volved.  Add the interest amounts for each 
 of comparable or smaller size to the low-          Tax Liability Limitations                         prior year until the earlier of:
 income  units is rented to other than a            Line 10  — Enter your  adjusted  tax liabil-
 low-income tenant (on other than a tem-            ity (the tax liability after refundable credits)  ●  The due date (not including extensions) 
 porary basis) during any period when               from the appropriate line of your tax return.        of the return for the recapture year, or
 the project does not comply with the set-                                                            ●  The date the return for the recapture 
 aside requirement or has experienced               Line 11 — The law requires that all other 
 a reduction in qualified basis for which           credits offset a taxpayer’s tax liability before     year is filed and any income tax due for 
 credits were allowable.);                          allowing  a  credit for  low-income housing.         that year has been fully paid.
                                                    Complete the Credit Worksheet on page 2              Enter the total on line 5 or 6.  (This in-
●  The credit did not reduce your tax liabil-       of Form N-586 and enter the result on line        terest is not deductible on your income tax 
 ity; or                                            11.                                               return.)
●                                                   Line 13. Total Credit Applied — Enter the            Line 7 —  Include the total credit recap-       The qualified basis is reduced because 
 of a casualty loss, provided the property          smaller of line 9 or line 12 here and in Col-     tured on the appropriate  line representing 
 is restored or replaced within a reason-           umn (b) on Schedule CR, line 25. This is          your tax liability.
 able period.                                       your maximum credit allowed for  this  tax-
                                                    able year.                                           For  flow-through  entities  that  file  Form 
Specific Instructions                                                                                 N-20 or Form N-35, identify amounts as 
                                                    Line 14. Unused Credit to Carryover —             “Recapture  of low-income  housing  tax 
Part I                                              This is the amount of the tax credit that you     credit”:
Line 5 — Enter the amount of tax credit al-         are allowed to carryover and apply against 
located by the HHFDC after December 31,             your tax  liability in a  future year.  If  this     N-20, Schedule K-1, line 31. 
                                                                                                         N-35, Schedule K-1, line 24.