Low-Income Housing Tax Credit

The low-income housing tax credit program is an indirect federal subsidy used to finance the construction and rehabilitation of low-income affordable rental housing. The low-income housing tax credit gives developers a dollar-for-dollar reduction in their federal tax liability in exchange for providing financing to develop affordable rental housing. Investors' equity contribution subsidizes low-income housing development, thus allowing some units to rent at below-market rates. In return, investors receive tax credits paid in annual allotments, generally over 10 years.

Low-income housing tax credit projects must meet eligibility requirements for at least 30 years after the project is completed. The required incomes and gross rents paid by households residing in units financed with low-income housing tax credit are set annually by the US Department of Housing and Urban Development. If the income of the tenant or the rent charged do not meet these guidelines, the unit cannot be counted towards the eligible basis for the project. According to the low-income housing tax credit program guidelines, housing project owners have the option of choosing between two income targets or minimum set-asides for low-income occupancy: a) 40% of the project's units must be reserved for tenants at or below 60% of the Area Median Income, or b) 20% of the units must be reserved for tenants at or below 50% of the Area Median Income.