Fund Management and Development

About the Low-Income Housing Tax Credit Program

The Low-Income Housing Tax Credit (LIHTC) Program was created by Congress in 1986 to provide an incentive for the private sector to invest in affordable housing. The program is based on Section 42 of the Internal Revenue Code and is administered by the state housing agency.

The LIHTC can be used to offset the cost of acquisition, substantial rehabilitation, or new construction of rental housing to be occupied by low-income residents.

Federal housing tax credits are awarded to developers of qualified projects in turn for a commitment to offer a lower rental rate for at least 15 years. The credits are used to offset an individual’s or corporation’s federal tax liability. Developers then sell these credits to investors to raise capital (or equity) for their projects. This reduces the debt that the developer would otherwise have to borrow.

Provided the property maintains compliance with the program requirements, investors receive a dollar-for-dollar credit against their federal tax liability each year for a period of 10 years. The amount of the annual credit is based on the amount invested in the housing.

Each state is awarded a certain amount of housing credit it can award to developers, based on the state’s population. These credits are awarded annually through a competitive review process, which takes into account the state’s affordable housing goals.