Low-Income Housing Tax Credit (LIHTC)

What is the Low-Income Housing Tax Credit ?

The Low-Income Housing Tax Credit Program is a federally authorized program to promote the construction and rehabilitation of affordable rental housing for not-for-profit and for-profit developers. This program was established by Congress under Section 252 of the Tax Reform Act of 1986 for low-income individuals. Tax credits provide a means by which acquisitions or developers can raise capital for construction. Investors in low-income rental housing are allowed, under the federal income tax code, to take credits against federal government taxes. LIHTC is a tax incentive for housing developers to build, renovate or purchase housing for low-income families or individuals. Residents must meet specific qualifications to benefit from these types of housing projects, including maximum income guidelines. The Low-Income Housing Tax Credit program is the single most important resource for creating affordable housing in the United States today.

The Low-Income Housing Tax Credit gives investors a dollar-by-dollar reduction in their federal tax liability in exchange for providing financing to develop affordable rental housing. Investors' equity contributions subsidize low-income housing developments, thus allowing some units to be rented out at below-market rates and, in turn, paid to investors in annual allocations (usually over 10 years). Tax credits made are received.

LIHTC also offers income incentives for those who invest in low-income housing projects. It aims to encourage the construction of more housing for low- and middle-income families in communities. Generally, the housing types that can receive LIHTC are multi-family properties. There are two types of credits available under this, the first is the 9% credit, which can be used only if there is no government subsidy or other credit applicable to the building project and the other is the 4% credit, which can be used as an additional tax credit. done in combination. These credits are applied over a ten-year period.

HUD collects low-income housing tax credit data at the tenant level and property. HUD's collection of tenant information includes economic characteristics and demographics of families living in LIHTC properties. This information is received from the state housing finance agencies that administer the LIHTC program. It provides access to tenant level and page property data and also access to data on difficult development areas or qualified census tracts designated by HUD.

The Low-Income Housing Tax Credit is a dollar-for-dollar federal tax credit for affordable housing investments. This program is administered by the State Housing Finance Agencies (IHDAs). In this, each state gets an allocation of credit on the basis of its population. Almost all investors are in corporation LIHTC projects. To qualify for LIHTC, the proposed development must include substantial rehabilitation or new construction of existing units occupied by low-income households and individuals. Applicants apply for the tax credit by submitting an application to the LHC. Applications are received and evaluated once a year under the eligible allocation scheme. The housing tax credit is based on the amount of development costs and the percentage of low-income units within the development.

How Does The Low-Income Housing Tax Credit Work?

Developers of affordable rental housing developments apply to the DHCD for the housing tax credit. If credit is awarded, developers look for investors to develop housing. The middlemen act as a bridge between the projects and the investors and pool the investors' money in equity funds. In return for providing growth funds, investors receive a stream of tax credits.

The maximum rent charged is based on sectoral average income, and is capped at 80% of the AMI. Rent should be kept affordable for an initial compliance period of 15 years and an extended usage period of 15 years afterwards. The LHC Compliance Division oversees the asset throughout its compliance and extended use period.

The Low-Income Housing Tax Credit program provides a subsidy of 30% or 70% of the cost in a low-income unit rental project. 30% subsidy (automatic 4% tax credit) is for new construction which can be used for acquisition cost of existing buildings or additional subsidy. A 70% subsidy (9% tax credit) supports new construction with no additional federal subsidies involved.

What is 4% and 9% LIHTC Credits ? 

Projects may be eligible for two types of credit, a 9% credit or a 4% credit. Tax credit can be claimed by investors for 10 years. The federal government issues tax credits to state and regional governments, and state housing agencies provide credits to private developers of affordable rental housing projects. When the housing project is put into service, investors can claim LIHTC over a period of 10 years.

Rental properties that qualify for LIHTC have both lower vacancy rates and lower debt service payments than market rate rental housing. LIHTC properties experience relatively quick lease-ups and these properties are often packaged as limited partnerships.

Macroeconomic principles affect where financed affordable housing will be built. The economics make it difficult to build financed housing in major cities, as land costs are high and low-income rents are far below market rates. Many developers have made projects economically viable with the help of additional federal, local and state subsidies.

Features of Low Income Housing Tax Credit 

  • LIHTC aims to increase the availability of low-income rental housing.
  • LIHTC subsidizes the construction of low-income housing by offering a 10-year tax credit for projects.
  • A project must commit to renting to tenants earning less than the median income in the area for 15 years.
  • LIHTC provides developers with transferable and non-refundable tax credits, which subsidize the rehabilitation and construction of housing developments with strict income limits for eligible tenants.
  • Low-Income Housing Tax Credit has subsidized over 3 million housing units since its inception.

Who Qualifies For The Low-Income Housing Tax Credit ?

Developers and owners of rental properties who provide affordable housing that meet specific qualifications may qualify for the Low Income Housing Tax Credit program. Many types of properties qualify for LIHTC, including apartment buildings, single family homes, duplexes and townhouses.

Low-income households that do not qualify for the tax credit may qualify to live in the Low Income Housing Tax Credit program property. Low-income families must apply for residency and meet certain requirements.

Low-income housing tax credit eligibility for developers or owners
Developers or owners must agree to meet the income test for tenants in one of the following three ways :
  • At least 20% of the units must be occupied by tenants whose income is 50% or less of the area's average income (AMI).
  • At least 40% of the units should be occupied by tenants whose income is 60% or less than AMI.
  • At least 40% of the units must be occupied by tenants with an average income not exceeding 60% and tenants with income not exceeding 80% of the AMI.
Developers or owners receiving LIHTC must also complete the Gross Rent Test. This test requires that the fare does not exceed 50% of the AMI or 30% of the 60%. Properties must meet income and gross rent tests for 15 years in order to keep earning the tax credit. States allocate tax credits through qualified allocation schemes so properties that provide affordable housing over a long period of time or homes to very low-income families will get priority.

Qualifications To Live In A Low-Income Housing Tax Credit Property

LIHTC property is a good option for you for affordable housing. It will require fulfilling the following basic eligibility as a family or individual:
  • You must meet specific asset income requirements, which generally means you will need to earn less than 60% of the AMI. However, the income requirements depend on the number of members and the unit in the household.
  • You can be a family or a single person with or without children.
  • There is no citizenship requirement for LIHTC.

Eligibility for Low-Income Housing Tax Credit

To qualify for the low-income housing tax credit, the following requirements must be met :
  • Projects for large families that offer the lowest monthly housing cost and rents for the lowest-income families are restricted.
  • Projects involving acquisition or resettlement that substantially rehabilitate the existing rental housing stock and offer rent-restricted units to low-income households.
  • Projects where tax credit is required for project viability.
  • Projects that meet the service and housing needs of a specific population of a community, including housing for the homeless.
  • Projects that provide housing for very low income individuals.
  • Projects which are located in rural areas of the state.

Who is Not Eligible for LIHTC ?

It is important to know the common disqualifications that make a person ineligible for the LIHTC program. This includes the following :

1) False Information :
Never give false information, doing so may disqualify you.

2) Bad Rental History :
Being asked to provide a list of previous landlords that the property manager can contact may disqualify you if you have any issues with previous rentals.

3) Bad Credit Report :
Your credit is likely to be reviewed. A credit history of late or missing payments can disqualify you.

4) Criminal Record :
A criminal record will not automatically disqualify you most of the times, but it can make it more difficult to obtain accommodation. It depends on whether you were convicted.

What are the Funding Limits of LIHTC ?

There is a $500,000 maximum tax credit award for a new assisted living project. There is a maximum credit award of $1,000,000 for any other project. DHCD may elect to grant a credit of up to $1.3 million for large-scale neighborhood impact projects. Allocations in excess of $1 million will be considered on a case-by-case basis.

DHCD expects that a sponsor receiving prizes in excess of $1 million (up to $1.3 million) will request a smaller amount of subsidy funding from the Department. The maximum eligible base per unit in tax credit development is $250,000 per support unit for projects that are within the Boston metro area and $200,000 per support unit for those that are outside the Boston metro area. DHCD will limit the eligible base allowable in protection set-aside to $175,000 per aid unit.

What is the Selection Criteria for LIHTC ?

  • In line with DHCD funding priorities.
  • Strength of the overall concept.
  • Development team strength.
  • Demonstrate the need for the project in the target neighborhood.
  • Appropriate design and site.
  • Appropriate scope of construction or rehabilitation.
  • Appropriate total development cost for the properties.
  • Financial viability of the project.
  • Local funding commitments and degree of local support.
  • Proof of readiness to proceed.
  • Inclusive of sustainable development.
  • Evidence of satisfactory progress on funded projects.

Low Income Housing Tax Credit Program Timeline

LIHTC and PPA applications are now accepted through the Multifamily Portal. To gain access to the Multifamily Portal, submit an MF Portal Account Request Form from the Illinois Housing Development Authority (IHDA) website or you can find the form at https://ppa.ihda.org.

IHDA is pleased to announce the tentative dates for the 9% Low-Income Housing Tax Credit Application Round. Please see the main event deadline for the 2023, 9% LIHTC round below :

PPA Deadline for 2023, LIHTC Applications
October 10, 2022
PPA Notification to Sponsors
December 13, 2022
2023 Applications Due
February 16, 2023
Clarification Period Notice / Responses Due
April 17, 2023 – April 21, 2023
Recommendations to Board
June 16, 2023

PPA and Application Timeline for 2022, 4% LIHTC

  • The Illinois Housing Development Authority will accept 4% LIHTC applications on a rolling basis through December 31, 2022.
  • The Illinois Housing Development Authority will notify sponsors within 45 days of receipt of the authorization request for 4% PPA approval.
  • Any 4% of applications along with PPA can be submitted on quarterly basis. See Multifamily Transaction Deadlines for more information on application deadlines.

How to Apply for Low Income Housing Tax Credit ?

The first step in applying for LIHTCs is to submit an initial project evaluation. The PPA addresses the project design, concept, proposed tenant population and location. Approved or rejected by IHDA or PPA. Approval of the PPA does not guarantee the allocation of any other IHDA resources or tax credits.

DHCD provides low-income housing tax credit funding twice a year through Notice of Funding Availability (NOFA). Applicants must complete and submit the One Stop Housing Application.

Low Income Housing Tax Credit Guidelines

LIHTC - Regulatory Related Documents

How to Apply for Property Stay in LIHTC Program ?

Follow the steps below to apply for an affordable housing property.

1) Find a LIHTC Property :
You can search the LIHTC apartment search tool from the LIHTC database or affordable housing online provided by the Department of Housing and Urban Development. You can contact a HUD approved housing counseling agency at 1-888-995-HOPE. If the waiting list is closed, you need to keep checking whether the list opens again or choose another location.

2) Receive and Complete the Application :
You can get an application at the property rental office or online. Keep in mind, application fee may have to be paid. Most applications will ask each adult in your household for information about income, age, number of people in the household, employment history, rental history, and criminal record. While filling the application, make sure you follow the instructions. If the application is filled incorrectly or information is missing, it may be rejected.

3) Submit Application :
You have to submit the application directly to the property management company. Make sure you comply with the submission requirements. If you submit an application only in person, it may be rejected because it was not submitted online.

What to do if the Application is Denied ?

If the application is rejected, you can appeal it. Your denial letter will include information on how to appeal it and an explanation for the denial. You must request a hearing with the housing program. At the hearing a representative will review your position and assess the validity of the appeal. If representatives find that you are eligible for the program, they will issue a written decision and update that.

LIHTC Program Contacts

Please call the Low Income Housing Tax Credit staff at (617) 573-1300 for additional information.