The Low Income Housing Tax Credit (LIHTC) is the nation's leading financing program for the production of affordable rental housing. In 2007, the LIHTC helped finance the development of 75,000 units of affordable housing across the country. The annual cost of the tax credit to the federal government is approximately $5 billion.
Passed into law in 1986 and codified as Section 42 of the Internal Revenue Code, the goal of the program is to encourage the development of affordable housing by subsidizing multi-family rental housing investment. The way this works is that housing developers — community development corporations (CDCs) and for-profit firms — apply for the right to receive tax credits. These tax credits are then "syndicated" or sold to investors, providing equity for housing developers and providing a tax write-off for the investor.
The process for obtaining tax credits is highly competitive. Credit authority is allocated on a state-by-state basis, based on population, with each state entitled to $2.00 per capita in 2010 (with a floor of $2,325,000). The states allocate the credits to specific projects through agencies that are typically known as the Housing Finance Agencies (HFAs). Each state's HFA must have a Qualified Allocation Plan that sets out the state's priorities (which might include such things as transit access or green building features) and eligibility requirements for the receipt of an award.
LIHTC credits can be used for a variety of projects, including new construction, rehabilitation, and housing for the elderly and disabled - provided that the projects are "qualified low income housing projects." To be considered a qualified project, either 20 percent or more of the units must be rent restricted and occupied by residents with incomes at 50 percent of the area median or less, or 40 percent or more of the units must be rent restricted and occupied by residents with incomes at 60 percent of the area median or less.
Depending on the type of project, the amount of the available tax credits may be as high as 70 percent of the eligible development costs. New construction projects that are not using other federal funds may be eligible for a credit of approximately nine percent per year over a ten-year credit period, which is approximately 70 percent in net-present-value terms. Projects that have tax-exempt bond financing or other federal subsidies, or projects that seek to acquire existing buildings for renovation funds may be eligible for a credit of approximately four percent per year over a ten-year credit period, which is approximately 30 percent in net-present-value terms. The credits are based on the project's "qualified basis" (as defined in the Internal Revenue Code), and apply only to qualified rental units. However, a project can have mixed income units, in which only a portion of the units are qualified rental units, but the credit would not be applied to the other units.
- The Housing Assistance Council has several resources relating to the LIHTC on its website.
- Links to state Housing Finance Agency offices can be found here: www.danter.com/taxcredit/stateinfo.htm
- The LIHTC page of the U.S. Department of Housing & Urban Development (HUD) is here: www.hud.gov/offices/fheo/lihtcmou.cfm
A HUD tutorial can be found here: www.nhtinc.org/state_and_local_preservation_resources.php
- The National Housing Trust fund has a list of state-by-state projects here:
- The National Low Income Housing Coalition contains several LIHTC resources on its website: