Housing is one of the most important aspects of the nation’s economy. Homeownership is vital to the communities and financial stability.
According to the Internal Revenue Service, the U.S. Department of Housing and Urban Development (HUD) administers the Low-Income Housing Tax Credit, which provides tax-exempt financing for housing units that are constructed, rehabilitated, or leased for occupancy by lower-income households.
The Low Income Housing Tax Credit (LIHTC) is a federal tax credit for real estate developers to build, purchase, or renovate housing for low-income individuals and families. The total amount of credit available each year is often capped by Congress, although it varies from year to year. In general, the LIHTC allows developers to build, purchase, or renovate housing that is intended to serve as a residence for low-income persons. For example, the $8,000 credit for the purchase of a home that is intended for occupancy by a family of four and has a “fair market rent” under Section 8 of the United States Housing Act of 1937 is the amount of credit the developer can claim.
About the LIHTC
The Low-Income Housing Tax Credit (LIHTC) is an important funding tool for affordable housing. Providing funding for the construction, rehabilitation, and purchase of low-income housing is critical to creating affordable rental housing opportunities for low-income individuals and families.
The Low-Income Housing Tax Credit is a widely-used initiative by Congress to help developers create affordable housing. The program allows developers who receive tax credits to recapture their investment cost within 10 years, so long as the housing meets certain criteria. The LIHTC was first enacted in 1986 under the Housing Assistance Tax Act of 1986, commonly known as the “HATFA”.
Nearly two million low-income families can use the Low-Income Housing Tax Credit to generate affordable housing in the United States. The LIHTC is a federal program that serves as both a subsidy for developers and a way to help the government continue to produce affordable housing. Projects that receive the LIHTC are eligible for a federal tax credit of 10 years.
Understanding the LIHTC
The Low Income Housing Tax Credit program was created to provide a federal tax credit for developers of new low-income housing. To qualify, the project must be located in a distressed area, have a below-market rental rate, and have an average of at least 20% of units rented to individuals and families with incomes at or below 60% of the Area Median Income (AMI).
Final Words
The Low-Income Housing Tax Credit is a powerful tool for creating and maintaining affordable housing for the most vulnerable members of our communities. It is also an excellent investment for both investors and developers. While the program is not without its challenges, it is an essential part of the affordable housing ecosystem.
Attend the Compliance Prime webinar to learn more about LIHTC “Unit Rules” Available Unit, Vacant Unit, Unit Transfer, etc.
