HUD Homes Articles | The Low Income Housing Tax Credit (LIHTC; frequently pronounced “lye-tech”) is a tax credit formed under the Tax Reform Act of 1986 (TRA86) that provides incentives for the deployment of private equity in the growth of affordable housing intended at low-income Americans. The credits are also frequently called Section 42 credits in indication to the appropriate section of the Internal Revenue Code. The tax credits are more appealing than tax deductions as they grant a dollar for dollar savings in a taxpayer’s federal income tax, while a tax deduction only provides a cutback in taxable income. The “passive loss rules” and similar tax changes made by TRA86 greatly reduced the value of tax credits and deductions to individual taxpayers. As a result, almost all investors in LIHTC projects are corporations.
How it works
The LIHTC grants financial support for the expansion costs of low income housing by permitting a taxpayer (more often than not the partners of a partnership that owns the housing) to get a federal tax credit equal to a big percentage of the cost sustained for development of the low income units in a rental housing development. Improvement capital is raised by “syndicating” the credit to an investor or, more commonly, a group of investors. To take benefit of the LIHTC, a developer will typically propose a project to a state agency, seek and win a competitive allocation of tax credits, complete the project, certify its cost, and rent-up the project to low income tenants. Simultaneously, an investor will be found that will make a “capital contribution” to the partnership or limited liability company that owns the project in exchange for being “allocated” the entity’s LIHTCs over a ten year period. The amount of the credit will be based on (i) the amount of credits awarded to the project in the competition, (ii) the actual cost of the project, (iii) the tax credit rate announced by the IRS, and (iv) the percentage of the project’s units that are rented to low income tenants. Failure to comply with the applicable rules, or a sale of the project or an ownership interest before the end of at least a 15-year period, can lead to recapture of credits previously taken, as well as the inability to take future credits.
State Agencies Allocating Low Income Housing Tax Credits
- Alabama Housing Finance Authority
- Alaska Housing Finance Corporation
- Arizona Department of Housing
- Arkansas Development Finance Authority
- California Tax Credit Allocation Committee
- Colorado Housing and Finance Authority
- Connecticut Housing Finance Authority
- Delaware State Housing Authority
- District of Columbia Housing Finance Agency
- District of Columbia Department of Housing and Community Development
- Florida Housing Finance Corporation
- Georgia Department of Community Affairs
- Housing and Community Development Corporation of Hawaii
- Idaho Housing and Finance Association
- Illinois Housing Development Authority
- City of Chicago Department of Housing
- Indiana Housing and Community Development Authority
- Iowa Finance Authority
- Kansas Housing Resources Corporation
- Kentucky Housing Corporation
- Louisiana Housing Finance Agency
- Maine State Housing Authority
- Maryland Department of Housing and Community Development
- MassHousing
- Massachusetts Dept. of Housing and Community Development
- Michigan State Housing Development Authority
- Minnesota Housing Finance Agency
- Mississippi Home Corporation
- Missouri Housing Development Commission
- Montana Department of Commerce, Board of Housing
- Nebraska Investment Finance Authority
- Nevada Department of Business and Industry - Housing Division
- New Hampshire Housing Finance Authority
- New Jersey Housing and Mortgage Finance Agency
- New Mexico Mortgage Finance Authority
- New York State Division of Housing and Community Renewal
- New York State Housing Finance Agency
- City of New York, Dept. of Housing Preservation and Development
- Development Authority of the North Country (New York)
- North Carolina Housing Finance Agency
- North Dakota Housing Finance Agency
- Ohio Housing Finance Agency
- Oklahoma Housing Finance Agency
- Oregon Housing and Community Services
- Pennsylvania Housing Finance Agency
- Puerto Rico Housing Finance Corporation
- Rhode Island Housing
- South Carolina State Housing Finance and Development Authority
- South Dakota Housing Development Authority
- Tennessee Housing Development Agency
- Texas Department of Housing and Community Affairs
- Utah Housing Corporation
- Vermont Housing Finance Agency
- Virgin Islands Housing Finance Authority
- Virginia Housing Development Authority
- Washington State Housing Finance Commission
- West Virginia Housing Development Fund
- Wisconsin Housing and Economic Development Authority
- Wyoming Community Development Authority
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