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.

#’sABCDEFGH
IJKLMNOPQ
RSTUVWXYZ

#’s

4% tax credit (aka 30% credit): The credit percentage that is used for the purchase of existing buildings under the competitive federal Low Income Housing Tax Credit (LIHTC), and for all eligible costs (including building acquisition, new construction and rehabilitation) funded through the subsidized bond program. The 4% acquisition credit is not eligible for a basis boost increase, and the amount of the tax credit is subject to adjustment based upon the Applicable Federal Rate (AFR). Click here for a table of AFR’s. For more information about the 9% and 4% tax credits, click here.

9% tax credit (aka 70% credit): The credit percentage that is used for the funding of new construction and rehabilitation under the competitive federal Low Income Housing Tax Credit (LIHTC). The 9% credit may be eligible for a basis boost, and the amount of the tax credit is subject to adjustment based upon the Applicable Federal Rate (AFR). Click here for a table of AFR’s. For more information about the 9% and 4% tax credits, click here.

10% test: Refer to carryover allocation.

10 Year Rule: The federal rule that prevents most buildings that have been placed in service and/or substantially improved within the last ten years from being eligible for 4% acquisition-rehabilitation tax credits.

15-40 election: Refer to Deep Rent Skewing and the Next Available Unit Rule.

20-50 test: One of the minimum set-aside tests available for determining project eligibility under the federal Low Income Housing Tax Credit (LIHTC), which requires that a minimum of 20% of a development’s units must be set aside for household with incomes at or below 50% of Area Median Income. Click here for an explanation of the set-asides.

25-60 test: One of the minimum set-aside tests available for determining project eligibility under the federal Low Income Housing Tax Credit (LIHTC), which requires that a minimum of 25% of a development’s units must be set aside for household with incomes at or below 60% of Area Median Income. (This particular test may be used only in New York City.) Click here for an explanation of the set-asides.

40-60 test: One of the minimum set-aside tests available for determining project eligibility under the federal Low Income Housing Tax Credit (LIHTC), which requires that a minimum of 40% of a development’s units must be set aside for household with incomes at or below 60% of Area Median Income. (The 40-60 test may not be used in New York City, where it is replaced by the 25-60 test.) Click here for an explanation of the set-asides.

50% test: An affordable housing development that uses private activity (tax-exempt) bonds must fund at least 50% of its “aggregate basis” (depreciable assets + land) with bond proceeds in order to be eligible for the LIHTC.  The 50% test does not apply to projects that use the competitive 4% acquisition and 9% tax credits.

30% present value low income housing credit: An alternate term for the 4% tax credit. For more information about the 9% and 4% tax credits, click here.

70% present value low income housing credit: An alternate term for the 9% tax credit. For more information about the 9% and 4% tax credits, click here.

140% rule: Refer to the Next Available Unit Rule

8609: The 8609 is the federal tax form that certifies that a building is eligible to receive low income housing tax credits.  8609s are executed by the applicable state housing credit agency and are issued after buildings are placed in service.

8823: The 8823 is the federal tax form used by state housing credit agencies to notify the Internal Revenue Service of LIHTC project compliance violations. For more information about Section 42 compliance, click here.

Return to the top of the page

A

Acquisition credit: An alternate term for the 4% competitive tax credit.

Adaptive reuse: The conversion of a property to a different use than what was originally intended. Some housing credit agencies encourage developers to use the Section 42 program to repurpose former hotels, schools, industrial properties, etc. and to otherwise use the LIHTC program as a tool for reducing blight.

Affordable housing: Defined by HUD (the US Department of Housing and Urban Development) as income-restricted housing that limits combined resident rent and utility costs to an amount that does not exceed 30% of gross household income. The Low Income Housing Tax Credit (LIHTC) and Section 8 rental assistance program both use this 30% formula when determining eligible income limits, maximum rent levels, rental subsidies, etc.

Applicable Federal Rate (AFR): For LIHTC developments, the Applicable Federal Rate (AFR) is used to determine a project’s applicable percentage for both the 9% and 4% tax credits. Click here for a table of AFR’s for the 9% and 4% LIHTC.

Applicable fraction: The applicable fraction is the percentage of a building that is eligible for receiving low-income housing tax credits (LIHTC). The applicable fraction is determined by the lesser of the percentage of the unit count or the percentage of floor space that maintains affordable housing restrictions. Click here to learn how the applicable fraction is included in the calculation of LIHTC.

Applicable percentage: The applicable percentage is equal to the AFR (Applicable Federal Rate) that is applied to a given building’s 4% and 9% tax credits. Click here to learn how the applicable percentage is included in the calculation of LIHTC.

Area Median Income (AMI): Area Median Income is the median income level for a given MSA (Metropolitan Statistical Area) or rural county. AMI is used to determine income eligibility for low income housing and to set maximum allowable rents under the LIHTC program.

Average Income test: Refer to Income averaging test.

Return to the top of the page

B

Basis boost: An increase in the amount of tax credits provided to a Low Income Housing Tax Credit (LIHTC) property that is located in a Difficult Development Area (DDA), Qualified Census Tract (QCT), or other eligible location. This is often referred to the “130% basis boost”, as the amount of available credits is usually increased by 30%. Click here to learn how the basis boost is used to calculate tax credits.

Return to the top of the page

C

Carryover allocation: The carryover allocation is a document issued by a state housing credit agency that extends the amount of time that is allowed for a 9% competitive LIHTC project to be placed in service. A project must incur 10% of its costs during the year in which the tax credits were allocated or within six months within issuance of the carryover allocation in order to be eligible for this extension. Carryover rules do not apply to 4% credit tax-exempt bond projects.

Community Development Block Grant (CDBG) Program: CDBG provides grants to local and state governments to develop housing and other benefits for low- and moderate-income households. CDBG funds are sometimes used to support the development of Low Income Housing Tax Credit (LIHTC) properties.

Compliance period (LIHTC): Also referred to as the federal compliance period, this refers to the 15-year period during which a Low Income Housing Tax Credit (LIHTC) property must comply with federal LIHTC requirements in order to avoid recapture of the tax credits. The federal compliance period is followed by an additional compliance period of at least 15 years that is imposed at the state/territorial level and detailed in a Land Use Restriction Agreement (LURA.)

Credit period (LIHTC): The credit period is the period over which the LIHTC is claimed, which is typically for ten years. The credit period generally begins on the date that a property is placed in service, although a property owner may choose to begin the credit period at the beginning of the year after the property was placed in service.

Return to the top of the page

D

Deep rent skewing: Additional rent and income restrictions for LIHTC properties that are below the limits set by the minimum set aside (40-60/25-60, 20-50 and income averaging tests). State credit agencies generally encourage developers to include some variation of deep rent skewing in their LIHTC applications. In addition, the federal government provides its own incentive for deep rent skewing with the 15-40 election, which requires that a minimum of 15% of a development’s units are set aside for households with incomes at or below 40% of Area Median Income in exchange for a higher income ceiling under the Next Available Unit Rule.

Difficult Development Area (DDA): An area that is designated by HUD (the US Department of Housing and Urban Development) as having high construction, land, and utility costs relative to the area median income (AMI). Affordable housing properties developed in DDAs are eligible for the Low Income Housing Tax Credit (LIHTC) “basis boost.” (Click here to learn more about calculating the LIHTC.)

Return to the top of the page

E

Elderly household: A household that includes one or more persons who are at least 62 years of age as of the date of initial occupancy. Some LIHTC properties are dedicated specifically to serving senior populations.

Extremely Low Income: A household income level equal to 30% of Area Median Income (AMI.) This amount varies by area and the number of persons in the household, and is adjusted annually.

Eligible basis: The total amount of development cost that would be eligible for generating tax credits if all of the housing units are used for low-income housing. Click here to learn more about eligible basis, qualified basis and the applicable fraction.

Extended Use Agreement: Refer to Land Use Restriction Agreement (LURA).

Extended Use Period: Refer to Land Use Restriction Agreement (LURA).

Return to the top of the page

F

Fair Market Rent (FMR): A monthly rental amount calculated by HUD (the US Department of Housing and Urban Development) that is used determine payment standards for the Section 8 Housing Choice Voucher and other rental assistance programs. The current definition of Fair Market Rent is equal to the 40th percentile “gross rent” (i.e. rent and tenant-paid utility costs) for recent rentals that are not in substandard condition.

Floor Space Fraction: The proportion of floor space of a Section 42 development that is allocated to low income housing.  This ratio is used in conjunction with the Unit Fraction to determine the qualified basis of mixed-income LIHTC properties.

Return to the top of the page

G

Good cause eviction: Restrictions that prevent the arbitrary termination of leases. Section 42/ LIHTC tenants are subject to good cause eviction rules. Also known as “just cause eviction”.

Gross income: The total amount of household income that is used to determine eligibility for affordable housing and rent subsidy programs such as Section 8. In addition to wages, gross income includes unemployment benefits, welfare, social security and retirement benefits, military and veteran’s disability payments, interest and dividends.

Gross rent: The total housing cost burden incurred by the tenant, which includes both rent and the imputed cost of utilities as measured by the utility allowance. Gross rents cannot exceed 30% of the Area Median Income (AMI) for the set-aside that is applicable to the rental unit. Rental assistance subsidies such as Section 8 that are paid on behalf of the tenant are excluded from the calculation of gross rent. Click here for more information about gross and net rents.

Gross rent floor election: Provides LIHTC property owners with protection from future reductions in maximum allowable gross rents. Owners may choose between the maximum gross rents in effect on the date that the property was placed in service and the date of the tax credit allocation. The gross rent floor election does not apply to net rents, and therefore does not account for rent reductions that may be required due to increases in the utility allowance.

Return to the top of the page

H

HCCP (Housing Credit Certified Professional): An affordable housing professional accreditation program administered by the NAHB (National Association of Home Builders). Click here to learn about HCCP training.

HERA: An acronym for the Housing and Economic Recovery Act of 2008, an act of legislation that made substantial changes to the Section 42 LIHTC program.

HOME (Home Investment Partnerships Program): Provides grant funds to state and local governments that are used to support affordable housing activity, including LIHTC project development.

Household: A household includes all of those who reside in a housing unit, including individuals who are unrelated, i.e. roommates, caregivers, etc. as well as children and family members.

Housing Credit Agency: State and territorial agencies that are responsible for allocating Low Income Housing Tax Credits (LIHTC) in their respective jurisdictions. Each of the 50 states operates its own housing credit agency; in addition, the District of Columbia, Puerto Rico, US Virgin Islands and Guam also have their own HCA’s.

HUD: An acronym for the US Department of Housing and Urban Development, a US federal department that promotes affordable housing. HUD oversees the Section 8 rental assistance program and provides data that is relevant to the Low Income Housing Tax Credit program, such as the median income data that is used to set rent and income limits at affordable housing properties.

Housing Opportunities For Persons with AIDS (HOPWA): A federal program that offers housing assistance and supportive services to low-income households that include individuals who have HIV/AIDS.

Return to the top of the page

I

Income Averaging test: One of the minimum set-aside tests available for determining project eligibility under the federal Low Income Housing Tax Credit (LIHTC), which requires that a minimum of 40% of a development’s units must be set aside for household with incomes at or below 80% of Area Median Income and with an average project set aside that does not exceed 60% of AMI. Click here for an explanation of the set-asides. This setaside was added to the LIHTC program in 2018, and is formally referred to as the Average Income test.

Return to the top of the page

L

Low Income: A household income level equal to 80% of Area Median Income (AMI.)

Low Income Housing Tax Credit (LIHTC): A federal tax incentive that increases and preserves the existence of rental (and in some instances, rent-to-own) housing inventory for low-income households. Also often referred to as the Section 42 program. Click here for Westmont Advisors’ primer for the LIHTC.

Land Use Restriction Agreement (LURA): Also known as an extended use agreement, a LURA certifies that an affordable housing development will maintain income and rent restrictions for a period following the end of the 15-year federal LIHTC compliance period. The Internal Revenue Code requires a minimum extended use period of fifteen years, although many states will require or encourage lengthier extended use periods.

Return to the top of the page

M

Mixed-income housing: Housing developments that include both market-rate and affordable housing units. Market-rate housing costs are not eligible for low income housing tax credits, but state housing credit agencies often encourage the development of projects that combine LIHTC and market-rate units.

Metropolitan Statistical Area (MSA): An area that includes at least one urban area with a population of 50,000 or more. Income and rent restrictions for the Low Income Housing Tax Credit (LIHTC) are set at the MSA level based upon Area Median Income (AMI) and are adjusted annually.

Minimum set-aside: A project that qualifies to receive low income housing tax credits must reserve a minimum percentage of its units for low-income households. Click here for an explanation of the set-asides.

Return to the top of the page

N

Net rent: A tenant’s rent burden, net of reductions to gross rents due to the imputed cost of utilities, i.e. the utility allowance. Maximum allowable net rents account for the amount of the utility allowance. Click here for more information about gross and net rents.

Next Available Unit Rule: LIHTC tenants whose incomes increase above tax credit limits are not required to vacate their units. However, in mixed-income housing developments, the next available unit must be made available to a tenant with the same set aside as the over-income unit once the over-income tenant’s income exceeds 140% of the income limit. (A project that chooses the 15-40 deep rent skewing election can increase this amount to 170%.)

Return to the top of the page

P

Placed In Service date: The date that an LIHTC building developed with the 9% credit is ready for occupancy. The federal credit period begins on the placed in service date and is identified on Treasury Form 8609. For more information, click here for a discussion of the carryover allocation.

Preservation: In affordable housing, preservation refers to efforts that are made to keep units in affordable housing programs and to prevent them from being converted to market-rate.

Return to the top of the page

Q

Qualified Census Tract (QCT): A census tract in which at least 25% of households are below the poverty rate and/or at least 50% of households have an income that is less than 60% of the area median income (AMI). Affordable housing properties developed in QCTs are eligible for the Low Income Housing Tax Credit (LIHTC) “basis boost.” Click here to learn more about calculating the LIHTC.

Qualified basis: The total amount of development cost that is applied to receiving low income housing tax credits (LIHTC). Click here to learn more about qualified basis and its relationships to qualified basis and the applicable fraction.

Qualified Allocation Plan (QAP): A document issued by housing credit agencies that outlines a state’s or territory’s LIHTC program objectives.

Return to the top of the page

R

RD (Rural Development): A federal agency within the USDA (US Department of Agriculture) that operates affordable housing development, lending and rent subsidy programs in rural areas. The RD 515 program has been widely used in conjunction with LIHTC development. Click here for a link to the USDA multifamily website.

Return to the top of the page

S

Scattered site: An affordable housing project that is located on two or more sites that are not contiguous.

SHCM (Specialist in Housing Credit Management): An affordable housing professional accreditation program administered by NAHMA (National Affordable Housing Management Association). Click here to learn about SHCM training.

Section 8: A federal program administered by HUD (the US Department of Housing and Urban Development) that provides rental subsidies to low-income households. Section 8 may be tenant-based, with residents provided with Housing Choice Vouchers that may be used at eligible conventional housing properties. Section 8 should not be confused with the Low Income Housing Tax Credit (LIHTC), although the LIHTC and Section 8 may be and are often used in conjunction with one another.

Section 42: The section of the Internal Revenue Code that regulates the federal Low Income Housing Tax Credit (LIHTC). Click here for a link to the statute.

Section 202: A HUD program that supports the development of affordable housing for very-low-income seniors.

Supportive housing: Affordable housing that targets the needs of special needs populations such as the homeless, disabled and seniors.

Return to the top of the page

T

Transit-Oriented Development (TOD): Developments that include some combination of housing, commercial space, and/or employment opportunities that provide access to public transportation and reduce car dependency. Some states encourage the development of TOD’s with low-income housing.

Transitional housing: Affordable housing that caters to the needs of homeless residents, which is intended to provide a temporary (i.e. 24 months or less) transition to permanent housing.

Tax credits: Tax credits reduce tax liability by amounts equal to the amount of the credits, e.g. $100 of tax credits reduce tax liability by $100. Click here for a comparison of tax credits vs. tax deductions.

Return to the top of the page

U

Unit Fraction: The proportion of housing units of a Section 42 development that are allocated to low income housing.  This ratio is used in conjunction with the Floor Space Fraction to determine the qualified basis of mixed-income LIHTC properties.

Utility allowance: The imputed cost of tenant-paid utilities. Utility costs paid by the property owner and the costs of telephone service and cable/satellite television are not included in the utility allowance. The amount of the utility allowance results in a dollar-for-dollar reduction in the maximum rent that can be charged for a low-income housing unit. Click here for more information about the utility allowance.

Return to the top of the page

V

Very Low Income (VLI): A household income level equal to 50% of Area Median Income (AMI.) VLI varies by area and the number of persons in the household, and is adjusted annually.

Volume cap: The volume cap is the annual maximum amount of Low Income Housing Tax Credits that a state or territory may allocate. There are different volume caps for competitive 9%/4% tax credits and 4% tax-exempt bonds. Since 2003, the volume cap has been indexed to inflation.

Return to the top of the page

____________

Westmont and our partners at TheoPRO can serve your needs throughout the United States. Please do not hesitate to contact us for more information about our consulting and advisory services for real estate acquisition, asset management and tax credits, including the Low Income Housing Tax Credit (LIHTC) and Historic Tax Credit (HTC), as well as other real estate matters. Click here to learn more about our team.

Thanks for your business.

 

If you are a developer, investor, property manager, government official or other real estate professional with any questions or comments, please feel free to contact us by phone at (310) 598-5900, via email at or by completing the form below.

Please let us know how you heard about us:
Personal or online referralGoogleBingYahooOther