Low Income Tax Credit Housing

The Low-Income Housing Tax Credit (LIHTC) is a crucial federal program aimed at fostering the development, construction, and renovation of affordable rental housing for low- and moderate-income individuals and families. Enacted as part of the 1986 Tax Reform Act, this program has evolved over time, responding to changing needs.

Since the mid-1990s, the LIHTC initiative has been a driving force behind the creation or restoration of approximately 110,000 affordable rental units each year. However, there was a significant dip in this number during the aftermath of the Great Recession in 2008–09. Altogether, over 2 million affordable housing units have been supported since its inception.

The Mechanics of LIHTC

Under the LIHTC program, the federal government issues tax credits to state and territorial governments. Subsequently, state housing agencies distribute these credits to private developers involved in affordable rental housing projects through a competitive process. Generally, developers sell these credits to private investors to secure the necessary funding. Once the housing project becomes available to tenants, investors can claim the LIHTC over a 10-year period.

Eligibility Criteria for LIHTC

The LIHTC program encompasses various types of rental properties, such as apartment buildings, single-family homes, townhouses, and duplexes. To qualify for these credits, property owners or developers must adhere to specific income and rent guidelines.

• Income Test: There are three ways to meet the income test.
  • At least 20 percent of the project’s units must be occupied by tenants with an income of 50 percent or less of the area median income adjusted for family size (AMI).
  • At least 40 percent of the units must be occupied by tenants with an income of 60 percent or less of AMI.
  • At least 40 percent of the units must be occupied by tenants with income averaging no more than 60 percent of AMI, with no units occupied by tenants with income greater than 80 percent of AMI.
• Gross Rent Test: This test stipulates that rents should not exceed 30 percent of either 50 or 60 percent of AMI, depending on the proportion of tax credit rental units in the project. Florida LIHTC projects must adhere to the income and rent tests for a duration of 15 years, and there is often an extended compliance period of 30 years in total.

Calculating the Credit

The annual credit claimed by a taxpayer is determined by a credit percentage multiplied by the project’s qualified basis. The percentage varies based on whether it is new construction or substantial rehabilitation (approximately 9 percent), or properties acquired for renovation or funded using tax-exempt bonds (about 4 percent). The qualified basis is determined by the fraction of the housing project’s cost rented to tenants meeting the income criteria. Many low income tax credit housing projects aim to rent 100 percent of their units to qualifying tenants. State housing finance agencies may provide additional tax credits to select projects in areas with the greatest need for affordable rental housing.

Allocation of the Credit

Congress sets a cap on the amount of LIHTC that can be allocated each year. These limits are adjusted for inflation. This ensures that states with lower populations receive a relatively larger allocation when calculated on a per capita basis. States then allocate these credits to developers based on state-created qualified allocation plans. These plans prioritize projects serving very low-income households and offering affordable housing for longer durations.

The Role of Investors

Developers typically sell the tax credits to investors. Investors can utilize these credits and other tax benefits associated with the housing project, such as depreciation and interest paid. Most investors in low income tax credit housing projects are corporations with sufficient income tax liability to make full use of nonrefundable tax credits. Financial institutions are major investors due to their substantial income tax liabilities, long-term planning, and potential Community Reinvestment Act credit from regulators for such investments.

9 Percent vs. 4 Percent

The LIHTC can be pro-rated over 10 years and used to construct new rental buildings or renovate existing ones. It supports a 30 percent or 70 percent subsidy for the low-income unit costs in a project. The 30 percent subsidy, known as the 4 percent tax credit, is utilized for new construction with additional subsidies or the acquisition of existing buildings. The 70 percent subsidy, known as the 9 percent tax credit, is employed for new construction without additional federal subsidies.

Benefits and Challenges

LIHTC projects tend to have lower debt service payments and lower vacancy rates than market-rate rental housing. They often experience a swift lease-up. These projects are frequently structured as limited partnerships, offering investors limited liability. The LIHTC program is estimated to cost approximately $9.5 billion per year, making it the largest federal program aimed at creating affordable rental housing for low-income households. Supporters view it as an effective initiative that has significantly increased the stock of affordable housing for over 30 years.

However, critics argue that the federal subsidy per unit of new construction is higher than necessary due to the various intermediaries involved, leading to a portion of the tax subsidy not going directly into creating new rental housing. The program’s complexity and the concentration of low-income communities in some areas have also been identified as issues.

The LIHTC program plays a crucial role in addressing the market failure of insufficient quality affordable housing in low-income communities. By leveraging private-sector incentives, it fosters the development, management, and maintenance of affordable housing for low-income tenants, effectively increasing the affordable housing stock in the United States.

 

FAQs

Q : Which states does not have income tax?

A : If you’re wondering what states have no income tax, here is a list of income tax-free states in the U.S. states. These include Alaska, Florida, Nevada, South Dakota, Texas, Washington, and Wyoming.

Q : What are some low income housing tax credit apartments near me?

A : To find LIHTC apartments in Florida, you can start by visiting the website of the Florida Housing Finance Corporation (Florida Housing). They provide information and resources to help you locate low-income housing credit properties in your area.

Q : What is the low-income housing tax credit program Florida?

A : The low-income housing tax credit program Florida is a federal initiative designed to incentivize the creation and preservation of affordable tax credit homes for low and moderate-income individuals and families. It provides housing credits to developers who invest in affordable housing projects, allowing them to raise capital for construction or renovation.

Q : What does no income tax mean?

A : “No income tax” refers to the absence of state-level income taxes on an individual’s or household’s earned income within a specific U.S. state. In states with no income tax, residents do not pay a state income tax on their wages, salaries, or other forms of income.