LIHTC, or the low-income cheap online ultram housing tax credit is an indirect subsidy from the Federal Government that can be used to finance affordable rental housing for those with a low income. Local housing and community development programs can use these tax credits to increase the amount of affordable housing in their local community.

How It Works

The program is based on Section 42 of the IRS Code, and was first enacted in 1986 in order to give incentive for private markets to invest in affordable housing.  The credits are awarded to the developers for qualified projects, and then they are sold to investors in order to raise capital for the project. Since the debt load is shouldered by the developer in low income housing unit projects, they can afford to offer their units as a cheaper rental rate.

The investors then receive a dollar-for-dollar credit each year over the following ten years, which they can use to reduce their federal tax liability. The amount of the credit awarded depends on the amount that was originally invested in affordable housing projects.

Allocation of Tax Credits

Every year the IRS allocates the LIHTC to designated agencies in each state. These agencies then award the credits to qualified developers. The tax credit limit per state is $1.75 per resident, per year. Beginning in 2003 this amount is adjusted annually for inflation, and you can visit the U.S. Department of Housing and Urban Development website for more information on tax credits available by state.

Each state has two years to use their tax credits allocated annually, after which time the credits will be returned to the national pool to be re-allocated. The state agency will award tax credits based on a competitive process to find projects that serve the lowest income families and are structured to remain affordable for as long as possible. Ten percent of tax credits must be allocated to non-profit groups.

Determining Eligibility

Each proposed project must adhere to certain guidelines to be considered eligible:

1)      The project must be a residential rental property.

2)      It must commit to one of a possible two low-income occupancy requirements.

3)      The completed project must restrict rent and utility charges.

4)      The building must operate under rent and income restrictions for at least 30 years.

Low-income tax housing credits can be awarded to developers of existing buildings, as long as the building has not changed ownership in at least 10 years prior to acquisition and has not been in service for the same period of time.

Rent and utility costs on an eligible building must not exceed the applicable limits set by the LIHTC, and must remain within these limits for thirty years.

Green Research Council

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