In Practice
The Low-Income Housing Tax Credit, or LIHTC, is the main federal tool for building affordable apartments. Created under Section 42 of the Internal Revenue Code, it gives owners and investors a tax credit over ten years in exchange for keeping a share of the units affordable. State housing agencies award the credits and monitor compliance.
A LIHTC property sets aside units for households under a certain percentage of AMI, such as 50 or 60 percent, and caps the rent, including a utility allowance, at a set share of the income limit. Owners choose a minimum set-aside, such as 20 percent of units at 50 percent AMI, 40 percent at 60 percent AMI, or an income-averaging option. Site teams certify income at move-in, track student status, keep rents below the limit and prepare for agency file audits and inspections.
Example: an applicant's income falls below the limit for the household size. The team completes the income certification, confirms the rent plus utility allowance is under the maximum, and stores the file. A household over the limit generally cannot be placed in that unit.
The common mistakes are missing verifications, using an outdated income chart, charging fees that push rent above the maximum and skipping the student rules. Mistakes can lead to noncompliance reports to the IRS. Rules vary by state agency and by property, so check your allocation documents and your compliance contact.
Not to Be Confused With
LIHTC is a tax credit for developing affordable apartments with income and rent limits. Section 8 is rental assistance paid for a household.
LIHTC: Common Questions
What does LIHTC stand for?
Low-Income Housing Tax Credit, a federal program that encourages private investment in affordable rental housing.
Who qualifies to live in a LIHTC apartment?
Households whose income is at or below the set percentage of AMI for their size, which varies by property and election. Student rules also apply.
Is LIHTC the same as Section 8?
No. LIHTC is a tax credit that supports building and operating affordable apartments. Section 8 is rental assistance that pays part of a household's rent.
