Understanding the Low-Income Housing Tax Credit Program

The Low-Income Housing Tax Credit Program is a vital tool for addressing affordable housing needs in the US. It's a federal program that provides tax credits to developers who build and renovate affordable housing.

Developers can claim these tax credits over a 10-year period, which helps offset the costs of construction and operation. This program has been instrumental in creating over 2.5 million affordable housing units since its inception.

The program has been successful in part because it allows developers to sell the tax credits to investors, generating much-needed capital for affordable housing projects. This model has been adopted in many states and has helped to fund thousands of affordable housing developments.

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LIHTC stands for Low-Income Housing Tax Credit, a program that provides tax credits to developers who build affordable housing.

The program was created in 1986 as part of the Tax Reform Act, with the goal of increasing the availability of affordable housing.

Developers who receive LIHTC funding are required to rent at least 20% of their units to low-income families.

These units are typically rented at a reduced rate, often 30% or less of the area median income.

To apply for the Low-Income Housing Tax Credit program, you'll need to submit an application to a state authority, which will review it competitively. The application should include estimates of the project's expected cost and a commitment to comply with one of the set-asides.

The set-asides are conditions that ensure a certain percentage of the residential units are rent restricted and occupied by low-income individuals. There are three options: 20/50, 40/60, and income averaging. The 20/50 option requires at least 20% of the units to be rent restricted for individuals earning 50% or less of the area median gross income. The 40/60 option requires at least 40% of the units to be rent restricted for individuals earning 60% or less of the area median gross income.

To be eligible to rent in a tax credit property, households must have incomes that do not exceed 60% of the median income based on family size and county location. Rents are capped to remain affordable to families earning less than 60% of median income.

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The applicant qualifications for the LIHTC program are straightforward. Both nonprofit and for-profit developers may apply.

To be eligible, developers must be willing to offer a certain percentage of their units to low-income tenants. This can be done through a "set-aside" commitment, which guarantees a minimum number of units will be rent restricted and occupied by individuals whose income is below a certain threshold.

The LIHTC program allows both corporate and private investors to receive a fair return on their investment in affordable housing. This makes it an attractive option for those looking to invest in a socially responsible way.

In terms of specifics, developers must agree to a higher percentage of low-income usage than the minimums, which are 20% or more of the residential units for rent restricted units occupied by individuals whose income is 50% or less than the area median gross income, and 40% or more for units occupied by individuals whose income is 60% or less than the area median gross income.

Developers may also choose to offer income averaging, which allows them to set aside units for tenants whose income does not exceed the imputed income limitation designated by the taxpayer, as long as the average of these limitations does not exceed 60% of the area median gross income.

Acquisition is a crucial step in the process, and it's essential to understand the different types of acquisition credits available.

The Acquisition Credit is $1,600, as seen in Example 1. This credit is a significant amount that can be used to offset the costs of acquiring a property.

For buildings and land, the acquisition cost is $120,000, but this includes the value of the land, which is $20,000.

The qualified basis for acquisition is $40,000, which is calculated by subtracting the value of the land from the total acquisition cost.

The applicable credit percentage for acquisition is 4%, which is applied to the qualified basis to determine the acquisition credit.

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The Low-Income Housing Tax Credit (LIHTC) program has been extensively evaluated and studied over the years. The President's Economic Recovery Advisory Board (PERAB) estimated that the program would cost the federal government $61 billion in lost tax revenue from 2008-2017.

Experts believe that vouchers would be a more cost-effective way to help low-income households. A 2018 report by the GAO found that the LIHTC program financed about 50,000 low-income rental units annually, with median costs per unit ranging from $126,000 in Texas to $326,000 in California.

The range of per-unit costs varied dramatically, with California having the highest variance of $606,000 between the least expensive and most expensive per-unit cost. In contrast, Georgia had the lowest variance of $104,000.

Here's a breakdown of the average costs per unit by project size and location:

A 2022 study found that LIHTC projects increase land value in surrounding neighborhoods.

The 2008 financial crisis had a significant impact on the Low-Income Housing Tax Credit (LIHTC) program. $2.25 billion was allocated to the HOME Investment Partnerships Program for a grant program to provide funds for capital investments in LIHTC projects.

State housing credit agencies were awarded Tax Credit Assistance Program (TCAP) grants to facilitate development of projects that received LIHTC awards between October 1, 2006, and September 30, 2009. The grants were allowed to be offered in either a grant or loan form to the properties.

The Department of Treasury estimated outlay to States was $3 billion for 2009. State housing agencies were required to use a grant to make sub-awards to finance the acquisition or construction of qualified low-income buildings.

Recent Congressional legislation proposed expanding this program to 2010 housing credits.

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The LIHTC program has undergone extensive evaluations and studies to assess its effectiveness and impact. A 2010 report by the President's Economic Recovery Advisory Board estimated that the program would cost the federal government $61 billion in lost tax revenue from participating corporations from 2008-2017.

The Government Accountability Office (GAO) conducted a report in 2018, covering the years 2011-2015, which found that the LIHTC program financed about 50,000 low-income rental units annually. The median costs per unit for new construction ranged from $126,000 in Texas to $326,000 in California.

Some notable findings from the GAO report include the dramatic variation in per-unit costs across different states. For example, the range of per-unit costs varied dramatically, with Georgia having the lowest variance of $104,000, while California had the highest variance of $606,000.

Here's a breakdown of the per-unit cost variances across different states:

Larger projects with more than 100 units were found to be about $85,000 less expensive per-unit than smaller projects with fewer than 37 units. Additionally, urban projects cost about $13,000 more per-unit than non-urban projects.

A 2022 study found that LIHTC projects increase land value in surrounding neighborhoods, which is a positive outcome for the program. However, a 2018 report by the Urban Institute criticized the program's lack of permanent affordability requirements and questioned whether it fully meets the needs of the poorest households.

The Low-Income Housing Tax Credit program is designed to provide tax credits to developers who agree to maintain a certain percentage of rental housing as income restricted for at least 18 years.

Each state has an annual tax credit authority, with Michigan's being approximately $20 million. This authority is based on $2.00 per state resident.

The tax credit allocation process involves three stages: reservation, commitment, and allocation of credit. The final determination of how much credit will actually be awarded is made at the allocation stage.

The tax credit percentage is roughly 9% of the qualified basis of construction or rehabilitation costs for developments not utilizing federal or tax-exempt financing. For developments that do utilize federal or tax-exempt financing, the tax credit percentage is roughly 4% of the qualified basis.

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The tax credit program requires that a minimum of 20 percent of units be for residents whose incomes do not exceed 50 percent of area median income, or 40 percent of units for residents whose incomes do not exceed 60 percent of area median income.

In order to qualify for the tax credit, a project must agree to maintain a certain percentage of rental housing as income restricted for at least 18 years.

The maximum tax credit a project may receive is based on a percentage of the portion of rental housing that is income restricted.

An annual credit equal to roughly 9 percent of the qualified basis of construction or rehabilitation costs is available to developments not utilizing federal or tax-exempt financing.

Each state has an annual tax credit authority equal to $2.00 per state resident, which can add up to a significant amount.

Michigan's annual authority is approximately $20 million.

The process used to evaluate applications and allocate credit involves three stages: reservation, commitment, and allocation of credit.

The final determination of how much credit will actually be awarded is made at the allocation stage.

Applicable Credit Percentage is x 9%.

Here's a breakdown of the conditions that project owners must agree to in order to receive tax credits:

Rehabilitation is a key aspect of this program, offering financial incentives to property owners and developers.

The Rehabilitation/Acquisition Expenses can be subsidized up to 40% for low-income units.

For low-income units, the Acquisition Credit can be up to $1,600.

Rehabilitation Credit is also available, providing a significant financial boost to those undertaking rehabilitation projects.

The Annual Rehab Credit can be as high as $7,200, with a Total Annual Credit of $8,800.

This credit can be claimed over a period of 10 years, resulting in a Total Credit of $88,000.

Additional reading: Federal Housing Enterprises Financial Safety and Soundness Act of 1992

Development costs for low-income housing projects can be substantial, with an example project costing $6,000,000.

Eligible basis for tax credit purposes is typically lower, at $5,800,000 in this example.

The percentage of low-income units is a key factor in determining tax credit eligibility.

Total credit over 10 years can be significant, with a value of $5,220,000 in this example.

Construction expenses for low-income housing projects can be substantial, with an example project costing $6,000,000.

Rehabilitation and acquisition expenses can also be significant, with an example project spending $200,000 on substantial rehabilitation.

Acquisition credit can be substantial, with an example project receiving $1,600 in acquisition credit for 40% of its low-income units.

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To be eligible for Low-Income Housing Tax Credits, developers must submit an application for each rental property, agreeing to keep rents affordable for a period between 15 and 30 years for families and individuals with incomes at or below 80% of the local median income.

The tax credit is available each year for 10 years, as long as the property continues to operate in compliance with program regulations. This allows owners to lower the amount of the property's debt financing by exchanging the tax credits for equity investments from major financial institutions.

Compliance is crucial, as selection criteria for Housing Credits include factors such as project location, market demand, and ability to serve the lowest-income tenants. If you're a new developer, partnering with a successful developer is essential to increasing your chances of being selected.

Here are the key selection criteria for Housing Credits:

Tax credits can be a complex topic, but understanding the policies and forms involved can make a big difference in your financial situation.

To get started, download and review the tax credit policies documents, which will provide you with a clear understanding of the rules and regulations surrounding tax credits.

Tax credit forms are also available for download, making it easy to access the information you need to file your taxes correctly.

Compliance is key when it comes to tax credits, and understanding the compliance issues involved can help you avoid costly mistakes and penalties.

Reviewing the compliance documentation will help you stay on top of the latest changes and updates to tax credit policies.

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The Low Income Housing Tax Credit Program is a tax incentive for housing investors, created by the federal Tax Reform Act of 1986.

Developers can claim a tax credit equal to approximately 9% of the "Qualified Cost" of building or rehabilitating a property, which can be exchanged for equity investments from major financial institutions.

This lowers the operating costs and makes it economically feasible to operate the property at below-market rents.

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Competition for Housing Credits is intense, with only one of four proposals receiving credits annually, and selection criteria include project location, market demand, and ability to serve the lowest-income tenants.

To be eligible for the tax credits, owners agree to keep rents affordable for a period between 15 and 30 years for families and individuals with incomes at or below 80% of the local median income.

The tax credit is available each year for 10 years, as long as the property continues to operate in compliance with program regulations.

Here are the key benefits of the Low Income Housing Tax Credit Program:

The experience of a team in developing a project using Housing Credits is very important, and new developers may need to partner with a successful developer to qualify for the credits.

The Low-Income Housing Tax Credit program offers a community investment opportunity for corporate investors.

By participating in this program, corporate investors can receive a tax credit and additional tax benefits in the form of losses and depreciation.

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Financial institutions can also benefit from participating in tax credit developments, receiving credit under the Community Reinvestment Act.

Corporate entities can assist in creating affordable housing in Michigan communities, making a positive impact on local communities.

The eligible basis for corporate investors is $100,000, providing a clear guideline for those interested in participating.

Low-Income Housing Tax Credit yearly updates are essential for developers and applicants to stay informed about the latest guidelines and deadlines.

The QAP (Qualification and Application Process) guidelines are updated annually, with 2019 QAP guidelines and 2023-2024 QAP guidelines being two notable examples. These guidelines outline the requirements and procedures for applying for LIHTC funding.

To ensure compliance, developers must submit their applications by the specified deadlines, such as April 30, 2019, and April 28, 2023, for 2019 and 2023 LIHTC applications, respectively.

The general contractor certification and questionnaire must also be submitted annually, with deadlines of March 8, 2019, and March 10, 2023, for 2019 and 2023, respectively.

Here is a brief timeline of LIHTC applications and awards:

In 2018, DSHA had a busy year with several important updates.

DSHA released the 2018 QAP, which included guidelines and downloadable documents. You can request the documents, but that's about it.

The 2018 QAP also came with a map and several forms, including the LIHTC Application, Draft LIHTC Points Worksheet, and LIHTC Pro-form.

Additionally, DSHA issued waiver approvals and provided a timeline for the LIHTC process.

Here's a quick rundown of some key dates for 2018:

DSHA is a multifaceted agency that serves as both a housing finance and community development agency, as well as a public housing authority in Kent & Sussex County.

Related reading: New York State Housing Finance Agency

In 2019, the QAP (Quality Assurance Plan) was in effect, along with its guidelines. The documents for the 2019 QAP were available upon request.

The 2019 QAP included several key components, such as the QAP Map, LIHTC Application (Part I), LIHTC Points Worksheet (Part III), LIHTC Pro-form (Part II), and LIHTC Exhibit Checklist.

The 2019 LIHTC Timeline was also available, which helps track the important dates and deadlines for the program.

If you're a general contractor, you'll want to note that certification and a questionnaire were required, with an annual update deadline of March 8th, 2019.

Here are the important deadlines and dates to keep in mind for the 2019 LIHTC program:

In 2020, LIHTC applications were received on May 29th.

The preliminary award announcement for 2020 was made on August 5th.

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The 2021-2022 year was a significant one for LIHTC applications. The QAP, or Qualified Allocation Plan, was available for download upon request.

The QAP Guidelines outlined the rules and regulations for the year. A QAP Map was also provided to help navigate the process.

In 2021, the LIHTC Application (Part I) was due, along with the 2021 LIHTC Points Worksheet (Part III) and the 2021 LIHTC Pro-form (Part II).

Here are the key deadlines and milestones for 2021-2022:

The 2021 LIHTC Applications were received by April 30, 2021, and the Preliminary Award Announcement was made on July 8, 2021.

The 2023-2024 year brought some exciting updates for LIHTC applications. The QAP Map, QAP, and QAP Guidelines were all released, providing a framework for developers to follow.

The LIHTC Application (Part I) was a crucial document, and the LIHTC Pro forma (Part II) and LIHTC Points Worksheet (Part III) were also made available.

A new addition to the list was the DNet Liquid Assets Disclosure, which required developers to disclose their liquid assets.

Here's a list of the key documents released in 2023-2024:

The Delaware State Housing Authority (DSHA) also released several important documents, including the Real Estate Development Schedule, Litigation Disclosure, and Management Agent Qualifications Application.

These documents were all part of the 2023-2024 package, and developers needed to carefully review them to ensure compliance.

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The 2025-2026 year is packed with updates and requirements for developers. The QAP Map, QAP, and QAP Guidelines will be available for reference.

Developers will need to submit their LIHTC Application (Part I) and provide a LIHTC Pro forma (Part II) and LIHTC Points Worksheet (Part III). The LIHTC Exhibit Checklist will also be required.

The DSHA Real Estate Development Schedule outlines the timeline for development projects. The DSHA Litigation Disclosure and DSHA Net Liquid Assets Disclosure will also need to be submitted.

Management agents will need to qualify through the Management Agent Qualification Application and meet the Management Agent Requirements. They will also need to submit their Management and Marketing Plan Checklist and obtain certification for 811 and Target Unit Performance.

Developers will also need to provide Social Services Certification and an Affirmative Fair Housing Marketing Plan. The State of Delaware Reality Transfer Tax Declaration and Environmental Review Checklist will also be required.

Here is a list of certifications and submissions that will be needed for the 2025-2026 year:

To apply for a Low-Income Housing Tax Credit, you'll need to meet all the requirements. The first step is to ensure the Applicant/Developer/Borrower meets all LIHTC requirements.

You'll also need to ensure all resident or potential low-income resident qualifications are met. This is crucial to avoid any delays or rejections.

The application process typically involves submitting an application to a state authority, which will consider it competitively. You'll need to include estimates of the expected cost of the project and a commitment to comply with one of the set-asides.

The set-asides include options like at least 20% or more of the residential units being rent restricted and occupied by individuals whose income is 50% or less than the area median gross income.

Here are the specific set-aside options:

Low-income tenants can be charged a maximum rent of 30% of the maximum eligible income, which is 60% of the area's median income adjusted for household size as determined by HUD.