The Low-Income Housing Tax Credit (LIHTC) is a federal tax credit for the development of affordable rental housing that may qualify for a tax credit. The LIHTC is awarded competitively, and it is the last step in the process of construction or rehabilitation of affordable rental housing. The credit is available to all qualified investors (owners and developers) of housing for low and very-low-income households; the rents must be affordable to the low-income household. The tax credit is based on the cost of each unit of housing, and it is available to investors in the aggregate of the project.
Understanding the Low-Income Housing Tax Credit
The Low-Income Housing Tax Credit is a tax credit for a wide variety of housing activities, its scope is vast, and it can be extremely complicated. It is the largest, most comprehensive tax credit for the development of affordable housing in the United States. Under the LIHTC, developers (often small and medium-sized businesses) who invest in affordable rental housing are eligible to receive a tax credit based on a percentage of their investment. The amount of credit available depends on the project’s size, where it is located, and the type of housing.
The program was designed to provide state and local governments with an incentive to finance affordable housing development and rental housing rehabilitation. The program allows qualifying developers to reduce their federal income tax liability by the number of tax credits they receive from the Internal Revenue Service (IRS).
There are two types of credits available under LIHTC. The first one is a 9% credit. This can only be applied if the construction project has no other government subsidies or credits applied to it. The second one is a 4% credit. This can be used in combination with additional tax credits. The LIHTC credits are applied over ten years and can cover around the entirety of the taxable account for the building.
Support for Individuals Looking for Low Income Housing
The housing project that rents units out to renters who qualify for diminished rent on the basis of income and family size, or who hold a federal stipend to make their monthly rental payment is referred to low-income housing.
Final Words
A lot of properties can be eligible for the LIHTC Credit. However, a lot more projects are struggling for the credits than the number of credits available.
To know more about Low-Income Housing Tax Credit, join the Compliance Prime webinar.
