The Low Income Housing Tax Credit (Housing Credit) is a federal tax credit created by President Reagan and Congress in the Tax Reform Act of 1986 designed to encourage private sector investment in the new construction, acquisition, and rehabilitation of rental housing affordable to low-income households. Over the last three decades, the Housing Credit has become the most successful affordable rental housing production program in history.

The Housing Credit offers a dollar-for-dollar reduction in a taxpayer’s income tax liability in return for making a long-term investment in affordable rental housing. State agencies award Housing Credits to developers, who then sell the Credits to private investors in exchange for funding for the construction and rehabilitation of affordable housing. These funds allow developers to borrow less money and pass through the savings in lower rents for low‐income tenants. Investors, in turn, receive a 10‐year tax credit based on the cost of constructing or rehabilitating apartments that cannot be rented to anyone whose income exceeds 60 percent of area median income (AMI).

The program allows states to allocate Housing Credits to developments they select pursuant to qualified allocation plans (QAPs) they develop that identify the type, location, and other characteristics of affordable housing needed throughout the state. The QAPs must describe the criteria agencies will apply in allocating the Credit and are subject to review after a public hearing and comment process. In this way, the Housing Credit empowers states to respond to the housing needs, priorities, and challenges they consider most important.

Integral to the Housing Credit program is the multifamily Housing Bond program, which states use to finance approximately 40 percent of Housing Credit rental homes every year. Not only do Housing Bonds make possible the production of substantial numbers of new Housing Credit properties, but they are essential to state efforts to preserve affordable housing.

Housing Credit Allocating Agencies

Housing Credit Legislative and Advocacy Information