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…

LIHTC Income Limits, Rent Limits and Utility Allowances

Section 42 Low Income Housing Tax Credit (LIHTC) properties impose maximum household income limits that are based upon Area Median Income (AMI). Rent restrictions are also derived from the AMI and tenant-paid utility costs (the “utility allowance”.) AMI varies depending location and household size and is revised annually. However, a household is not required to vacate a unit if its income later exceeds the LIHTC limits. At least 20% of…

LIHTC Set Asides (Income Averaging | 20/50 | 40/60 ) and Area Median Income (AMI)

Section 42 Low Income Housing Tax Credit (LIHTC) properties are restricted by the “minimum set aside” and Area Median Income (AMI). LIHTC MINIMUM SET-ASIDE (20-50 vs. 40-60 vs. Income Averaging) LIHTC properties must dedicate a minimum percentage of their housing units to affordable housing. Since the creation of the LIHTC program, developers have been able to choose from one of two setasides: 20-50 Test: A minimum of 20% of the…

FAQ for LIHTC / Tax Credit Tenants

Below are some common questions asked by LIHTC Section 42 tenants and prospective residents: My landlord at a tax credit housing (LIHTC Section 42) property just raised my rent, but my income did not increase.  Is that allowed? LIHTC rents are NOT determined by your individual income. It is possible for your rent to increase even though your income did not go up. Rents at tax credit properties are determined…

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…