For those wanting to invest or develop affordable rental housing, you’ve probably heard of the low-income housing tax credit (LIHTC).
This tax credit is an essential resource for building projects to create housing for low and moderate-income families.
This article will look at what low-income housing tax credit is, the different types of credits available, and how you can qualify to receive this benefit.
It will also cover the type of housing that’s eligible for this credit and support for those looking for LIHTC housing.
There’s lots to cover, so let’s get started.
How to comply with LIHTC rules?
The low-income housing tax credit (LIHTC) was written into the Tax Reform Act of 1986. It’s a tax incentive for housing developers looking to build, buy or renovate properties for low-income families/individuals.
This tax reform was created to simplify the income tax code and provide an economic growth incentive.
It also aims to increase fairness. The Act reduced the maximum rate on income and increased the tax rate on long-term capital gains.
The LIHTC program gives State and local LIHTC-allocating agencies the equivalent of about $8 billion in the annual budget to issue tax credits for these low-income rental houses.
Do You Want to Invest in Affordable Rental Housing?
As stated above, the Low-Income Housing Tax Credit is an incentive for those who want to invest in low-income housing projects.
This could be in the form of renovating or purchasing existing housing or constructing new building projects.
Its intention is to create more housing for low and moderate-income families in communities where affordable rental housing would otherwise be out of reach. Typically, properties that receive the LIHTC are multi-family properties.
This literally means where multiple families live in separate housing units within one or several buildings within a complex.
However, multi-family properties are not the only properties to get the LIHTC. Many rental properties are eligible, such as single-family dwellings, duplexes, apartment buildings, and townhouses.
Credits Available:
There ate two main types of credits available:
- Nine percent credit: this can only be used in building projects that have no other government subsidies or credits applied to them.
- Four percent credit: this can be used with other tax credits. The credits are applied over 10 years and can cover almost the complete taxable expense of the building.
The federal government allocates these tax credits to each state. From there, each state can choose which developers can benefit from these credits for their housing projects.
There’s only a certain number of permits available, so not every developer will get this benefit.
Qualifying
As stated above, not everyone will be eligible for the Low-Income Housing Tax Credit. More projects are wanting the credits than there are credits available. Allocation is based on state population.
For a project to qualify for LIHTC, it must meet one of the following:
At least 40% or more of the rental units are rented to those earning 60% or less than the median family income in the area.
Or, at least 20% or more of the rental units are rented to those making 50% (or less) than the area’s median family income.
Alternatively, 40% or more of the rental units are rented to those with an income averaging no more than 60% of the median income in the area. Also, no units are rented to tenants earning more than 80% of the median income.
All projects receiving the LIHTC must maintain one of these income conditions for 15 years. If they don’t, the value of the tax credit can be recaptured.
Support for Those Looking for Low-Income Housing
LIHTC was created by HUD and has been available to the public since 1997. Since then, over 48,672 projects and over 3.23 million housing units have been in service for low-income households.
Low-income housing is designed to allow those with lower incomes to qualify for reduced rent based on this income or family size.
It can also be for seniors, those with disabilities, and those who receive a federal stipend to make their monthly rental payments.
Stipend means a predetermined amount of money paid to a particular individual (sometimes interns, or students, for example). In this case, those with lower incomes to help them make their monthly rental payments.
These housing projects can be managed by either a rental agency, housing authority, or private landlord that accepts a government-issued payment in conjunction with their tenant’s rent.
There are other types of support for those looking for low-income housing, such as low-income housing subsidies offered through the Department of Housing and Urban Development (HUD).
HUD is a U.S government agency that has programs intent on increasing affordable and safe rental options.
It also helps fight homelessness and housing discrimination by supporting those vulnerable and providing equal rental and purchasing opportunities.
If you need help paying rent, you may qualify for government programs and should contact your local public housing agency office or your state housing finance agency.
Affordable Rental Housing: Summed Up
All in all, low-income housing refers to a housing project or residential building that rents properties out to low or moderate incomes.
It’s also for those who receive a federal stipend to help make their monthly rental payments, the elderly and the disabled.
Suppose you’re looking to invest or develop affordable rental housing for those with low-moderate incomes. In that case, applying for the low-income housing tax credit could be an essential resource for you.
If you would like to learn more, please feel free to reach out and contact us today!
