What is LIHTC Housing?
What is LIHTC in Multifamily?
The Low-Income Housing Tax Credit (LIHTC) is a program in the United States designed to incentivize the private sector to invest in the development and rehabilitation of affordable rental housing for low-income households. Established as part of the Tax Reform Act of 1986, the LIHTC program is administered by the Internal Revenue Service (IRS) and involves both federal and state governments.
Here are the key components and features of the LIHTC program:
- Tax Credits Allocation:
- Each state receives an annual allocation of LIHTCs based on its population. State housing finance agencies (HFAs) are responsible for distributing these credits to developers through a competitive process.
- Each state receives an annual allocation of LIHTCs based on its population. State housing finance agencies (HFAs) are responsible for distributing these credits to developers through a competitive process.
- Two Types of Credits:
- 9% Credit: This covers up to 70% of the present value of new construction or substantial rehabilitation costs. It is highly competitive.
- 4% Credit: This covers about 30% of the present value of acquisition and rehabilitation costs or new construction. It is typically less competitive and often combined with tax-exempt bond financing.
- Eligibility Criteria:
- Projects must meet certain requirements to qualify for LIHTCs, such as setting aside a specific portion of units for low-income tenants and maintaining affordability for at least 30 years.
- The income limits are usually set at 60% or less of the area median income (AMI), and rents are restricted accordingly.
- Application Process:
- Developers submit applications to their state's HFA, detailing their project plans, financing, and compliance with LIHTC requirements. Successful applicants receive an allocation of credits which they can use to attract private investors.
- Developers submit applications to their state's HFA, detailing their project plans, financing, and compliance with LIHTC requirements. Successful applicants receive an allocation of credits which they can use to attract private investors.
- Investor Attraction:
- Developers sell the tax credits to private investors to raise equity for their projects. In return, investors receive a dollar-for-dollar reduction in their federal tax liability over a 10-year period.
- Developers sell the tax credits to private investors to raise equity for their projects. In return, investors receive a dollar-for-dollar reduction in their federal tax liability over a 10-year period.
- Compliance and Monitoring:
- Projects receiving LIHTCs must comply with federal and state regulations, including annual income certifications of tenants and physical inspections. Non-compliance can result in the recapture of credits.
- Projects receiving LIHTCs must comply with federal and state regulations, including annual income certifications of tenants and physical inspections. Non-compliance can result in the recapture of credits.
- Impact:
- The LIHTC program has been highly successful in creating affordable housing. Since its inception, it has financed the construction and rehabilitation of millions of affordable housing units across the United States.
LIHTC is an important tool in addressing the affordable housing crisis, leveraging private investment to provide housing options for low-income families while offering tax benefits to investors.
