LIHTC: 9% Credits vs 4% Credits

The Section 42 federal low income housing tax credit (LIHTC) program includes two different development funding tracks: (a) competitive tax credits and (b) tax credits available through tax-exempt bonds (also known as private activity bonds.) There are three kinds of federal tax credits: 9% credits (aka 70% present value credits) for the new construction and rehabilitation of competitive tax credit projects 4% credits (aka 30% present value credits) for the acquisition of existing buildings…

7 Things You Need to Know About America’s Affordable Housing Crisis

With homeownership rates falling since the “Great Recession” of 2008-09, more than one-third of American households are now renters.  Many tenants struggle with rising rents and tightening supplies as their affordable housing options decline.  Government initiatives to address the rent burdened such as the low income housing tax credit (Section 42 LIHTC) program have not kept pace with these demographic and economic changes, and action will be needed to address…

How to Calculate Maximum LIHTC Rents: Gross Rent vs. Net Rent

The amount of rent that is payable by a low income housing tax credit (Section 42 LIHTC) tenant is referred to as “net rent.” The maximum net rent that is allowed under the tax credit program is derived from a “gross rent” amount; therefore, it is necessary to first calculate the gross rent prior to determining the net rent. (Please note that LIHTC maximum rents are not based upon comparable…

Affordable Housing – LIHTC Glossary

The Low Income Housing Tax Credit (Section 42 LIHTC) program and other affordable housing initiatives have their own unique terminology. Practitioners benefit from knowing the lexicon. Below you will find a useful glossary of terms as they are applied to low income housing generally and to the LIHTC in particular. #’s A B C D E F G H I J K L M N O P Q R S…

Tax Credit vs. Tax Deduction

A tax credit provides a dollar-for-dollar reduction in tax liability, not just a reduction in taxable income. A $1 tax credit results in a $1 reduction in tax liability. The value of a tax deduction is equal only to the taxpayer’s bracket. For example, a $1 tax deduction for a taxpayer in a 21% tax bracket will reduce tax liability by $0.21. Tax credit developments are typically structured to maximize…

Understanding the LIHTC (Low Income Housing Tax Credit)

Introducing the LIHTC The Section 42 Low Income Housing Tax Credit (LIHTC) program is a federal tax incentive that encourages private sector investors, developers and lenders to finance, construct and operate affordable housing. Since the program’s founding in 1986, LIHTC tax credits have been allocated for the construction and rehabilitation of more than three million housing units. About one of every six units of new rental housing built in the…

How to Calculate the Low Income Housing Tax Credit (LIHTC)

A property’s low income housing tax credits (Section 42 LIHTC) can be calculated by using a three-step process: 1. Determine the “eligible basis” (the total cost basis that is eligible for consideration in the calculation of the “qualified basis.”) 2. Calculate the “applicable fraction” and “qualified basis” (the percentage of the property that is dedicated to affordable housing, and the total cost basis that is eligible for credits based upon…

LIHTC Applicable Federal Rate (AFR) Update

The Applicable Federal Rate (AFR) is used as the Low Income Housing Tax Credit (LIHTC) “Applicable Percentage” that determines the eligible basis of tax credit properties. The AFR is reported monthly by the Internal Revenue Service for both the 9% and 4% tax credits. AFR’s for Section 42 tax credit properties since the year 2000 are listed below. (Please note the comments below re: legislative changes to the 9% credit.)…

LIHTC | Tax Credit Consulting

Westmont Advisors provides consulting services for the Low Income Housing Tax Credit (LIHTC), Historic Tax Credit and other US state and federal tax credits. Click below to learn more.

Meet the Team

  Westmont Advisors is a boutique real estate consultancy, specializing in multifamily and commercial real estate. We combine personal service and attention to detail with creative solutions and independent decision making. We take pride in our pragmatic, out-of-the-box approach and effective execution. Westmont works throughout the United States. Our diverse experience within real estate and finance, including acquisitions, dispositions, asset management and distressed asset workout and restructure provide you with…