{"id":6672,"date":"2025-08-08T10:10:34","date_gmt":"2025-08-08T04:40:34","guid":{"rendered":"https:\/\/www.complianceprime.com\/blog\/?p=6672"},"modified":"2025-08-13T10:15:56","modified_gmt":"2025-08-13T04:45:56","slug":"whats-the-difference-between-4-and-9-lihtc-and-why-it-matters","status":"publish","type":"post","link":"https:\/\/www.complianceprime.com\/blog\/2025\/08\/08\/whats-the-difference-between-4-and-9-lihtc-and-why-it-matters\/","title":{"rendered":"What\u2019s the Difference Between 4% and 9% LIHTC\u2014and Why It Matters"},"content":{"rendered":"\n

When it comes to financing affordable housing in the U.S., the Low-Income Housing Tax Credit (LIHTC) program is one of the most effective tools available. Administered by the Internal Revenue Service (IRS) and state housing finance agencies, LIHTC helps developers offset the cost of building or rehabilitating housing for low-income residents.<\/p>\n\n\n\n

There are two types of credits under the LIHTC program: the 4% credit and the 9% credit. While both are designed to support affordable housing, they differ significantly in structure, funding potential, and use cases. For developers, investors, and compliance professionals, understanding the distinction is essential, not just for compliance, but for maximizing financial feasibility and community impact.<\/p>\n\n\n\n

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What Is LIHTC?<\/h2>\n\n\n\n

The Low-Income Housing Tax Credit is a federal incentive introduced through the Tax Reform Act of 1986. It provides a dollar-for-dollar tax credit over a 10-year period to investors in affordable rental housing.<\/p>\n\n\n\n

To qualify, developers must meet income and rent restrictions, typically housing tenants earning 60% or less of the area median income (AMI). In exchange, developers receive tax credits they can sell to investors, generating equity to fund construction or rehabilitation.

To know more about how to calculate LIHTC rent limits<\/a>, do read our in-depth blog.<\/p>\n\n\n\n

Overview: 4% vs. 9% LIHTC<\/h2>\n\n\n\n
Aspect<\/td>4% LIHTC<\/td>9% LIHTC<\/td><\/tr>
Credit Rate<\/td>~4% (fixed since 2021)<\/td>~9% (fixed)<\/td><\/tr>
Subsidy Level<\/td>Lower (covers ~30% of development costs)<\/td>Higher (covers ~70% of development costs)<\/td><\/tr>
Source of Allocation<\/td>Tax-exempt bond financing (automatic)<\/td>State allocation (competitive)<\/td><\/tr>
Use Case<\/td>Primarily rehab\/preservation or new construction with bond financing<\/td>New construction or substantial rehab<\/td><\/tr>
Competition<\/td>Non-competitive<\/td>Highly competitive<\/td><\/tr>
Financing Cap<\/td>No limit on 4% deals (as long as 50%+ of development is funded by bonds)<\/td>Subject to state\u2019s annual LIHTC cap<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

Deep Dive: The 9% Credit<\/h2>\n\n\n\n

The 9% credit is often referred to as the \u201ccompetitive\u201d or \u201callocated\u201d credit because developers must apply through a Qualified Allocation Plan (QAP) administered by state housing agencies. These applications are scored, and only the highest-ranking proposals receive credits.<\/p>\n\n\n\n

Key Features:<\/h3>\n\n\n\n