The Low-Income Housing Tax Credit (LIHTC) Program is a federal government tax credit that helps facilitate the construction and rehabilitation of 3.6 million affordable housing units throughout the U.S. The program is meant to incentivize developers to create low-income housing by offering a 10-year credit on federal income tax. Properties using these credits must generally cap rents for some or all of the units at a certain percentage of a location’s area median income, or AMI.

The Low-Income Housing Tax Credit (LIHTC) program is a federal government tax credit that helps facilitate the construction and rehabilitation of affordable housing units throughout the U.S. The program functions as follows: The federal government grants state and territorial governments authority over a predetermined budget. State housing agencies can then award tax credits to private developers through a competitive process. Developers awarded low-income housing tax credits typically sell credits to private investors in order to obtain funding for a project.

Though technically a federal program, the LIHTC program is executed by individual state Housing Finance Authorities (HFAs), which are responsible for approving LIHTCs to investors and developers on a project-by-project basis. Each state has a Qualified Allocation Plan (QAP), created to detail specific eligibility requirements for LIHTC projects, which are typically stricter than at the federal level.

LIHTCs don’t provide a tax deduction, which would reduce a borrower’s taxable income. Instead, the credit provides a tax discount of a specific dollar amount that can be applied to the investor or developer’s tax bill. Once the housing project is made available to tenants, investors are then able to claim the LIHTC over a 10-year period.

LIHTCs help fund the new construction and rehabilitation of a variety of different property types, including traditional apartments, single-family homes, and two- to four-unit multifamily properties (think duplexes or triplexes). In addition, LIHTCs can fund the conversion of structures like schools, warehouses, and motels into multifamily properties. Properties using these credits must generally cap rents for some or all of the units at a certain percentage of a location’s Area Median Income (AMI).

In order for a property to be considered eligible for the Low Income Housing Tax Credit (LIHTC) Program, it must pass at least one of three affordability tests:

• 20% or more of the units are occupied by (or reserved for) tenants with an income of 50% or less of the area median income (AMI).
• 40% or more of the units are occupied by (or reserved for) tenants with an income of 60% or less of the AMI.
• 40% or more of the units are occupied by (or reserved for) tenants with an income of no more than 60% of the AMI, and the property has no units occupied by tenants with an income greater than 80% of the AMI.

In addition to the above, a gross rent test must also be passed. This test requires that rents for the property do not exceed 30% of either 50% or 60% of AMI (the exact percentage depends on the number of rental units set aside for the credit). LIHTC properties are required to pass these income and rent tests for a period of no less than 15 years — or risk having the tax credits recaptured by the local housing authority.

For more information, please visit apartment.loans/posts/what-is-the-lihtc and www.hud223f.loans/glossary/4-and-9-percent-lihtcs.

The Low-Income Housing Tax Credit (LIHTC) Program is a federal government tax credit that helps facilitate the construction and rehabilitation of affordable housing units throughout the U.S. Unlike tax deductions, which create a reduction in taxable income, tax credits provide a dollar-for-dollar reduction in an investor’s tax liability, which can be incredibly attractive.

The LIHTC program helps fund the new construction and rehabilitation of a variety of different property types, including traditional apartments, single-family homes, and two- to four-unit multifamily properties. In addition, LIHTCs can fund the conversion of structures like schools, warehouses, and motels into multifamily properties. Properties using these credits must generally cap rents for some or all of the units at a certain percentage of a location’s Area Median Income (AMI).

The LIHTC program is meant to incentivize developers to create low-income housing by offering a 10-year credit on federal income tax. Without the incentive, affordable rental housing projects would not be as appealing to multifamily investors, since they otherwise might not generate sufficient profit to justify investment.

In order to apply for the Low Income Housing Tax Credit (LIHTC) Program, you must contact your local state Housing Finance Authority (HFA). Each state has its own Qualified Allocation Plan (QAP) that outlines the eligibility requirements for LIHTC projects. You can find contact information for your local HFA on the National Council of State Housing Agencies website. Additionally, you can find more information about the LIHTC program on the U.S. Department of Housing and Urban Development website.

The Low-Income Housing Tax Credit (LIHTC) program provides a dollar-for-dollar reduction in an investor’s tax liability. This means that the LIHTC program does not provide a tax deduction, which would reduce a borrower’s taxable income, but instead provides a tax discount of a specific dollar amount that can be applied to the investor or developer’s tax bill. Once the housing project is made available to tenants, investors are then able to claim the LIHTC over a 10-year period.

For more information, please see the following sources:

• NAHRO: Low-Income Housing Tax Credit Program
• HUD Loans Blog: What is Area Median Income (AMI)?
• Apartment Loans: What is the Low-Income Housing Tax Credit?