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.
There are two components of the Housing Credit program: the “9 percent” Credit and the “4 percent Credit.” Each state’s 9 percent Housing Credit allocation is subject to a volume cap based on its population that limits the availability of the Credit in each state. In 2018, the state Credit cap is $2.40 times the state’s population, with a state minimum of $2,760,000. Volume cap figures are published by the IRS on an annual basis.
The 4 percent component of the program can only be triggered by the use of tax-exempt private activity multifamily Housing Bonds. Housing Bonds and the 4 percent Housing Credit finance approximately 50 percent of Housing Credit rental homes every year. Because multifamily Housing Bonds are limited by the Private Activity Bond volume cap, the 4 percent Credit is not subject to the Housing Credit volume cap. 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.
For more information on NCSHA’s Housing Credit advocacy, contact Jennifer Schwartz, Director of Tax and Housing Advocacy, at firstname.lastname@example.org. Members of the media should contact Lisa Bowman, Director of Marketing and Communications, at email@example.com.
Housing Credit Legislative and Advocacy Information
- NCSHA Recommended Practices (2017)
- NCSHA Housing Credit Q&A (2018)
- NCSHA Statement on the Administration’s FY 2019 Budget
- NCSHA’s Preliminary Analysis of the Administration’s FY 2019 Budget Request and Infrastructure Plan
- NCSHA Business Legislative and Regulatory Priorities
- 2018 Housing Credit Volume Cap
- 2018 DDA and QCT Designations (Federal Register / Vol. 82, No. 174)
- Rev. Proc. 2017-54: Housing Credit National Pool Allocations
- March 22, 2018FY 2018 Omnibus Spending Bill Includes Significant Victories for HOME, Housing Credit, and Other Affordable Housing Programs
The House today approved a $1.3 trillion omnibus spending bill to fund the federal government for the remainder of Fiscal Year (FY) 2018.
- March 20, 2018NLIHC Report Spotlights Affordable Rental Housing Shortage
According to the recent NLIHC study, there are 11.2 million extremely low-income (ELI) renter households in the United States — nearly 26 percent of all renter households and almost 10 percent of all households.
- March 9, 2018Senate Democrats Unveil Infrastructure Plan with Support for Affordable Housing
Senate Democrats this week released their Jobs & Infrastructure Plan for America’s Workers, a $1 trillion plan to invest in and modernize our nation’s infrastructure. Among other investments, Senate Democrats propose $62 billion for affordable housing, neighborhood revitalization, and lead remediation.
Housing Credit - Resources
- March 13, 2018National Low Income Housing Coalition Report on the Shortage of Affordable Rental Homes
Each year, the National Low Income Housing Coalition (NLIHC) measures the availability of rental housing affordable to extremely low income households and other income groups. Based on the American Community Survey Public Use Microdata Sample (ACS PUMS), The Gap presents data on the affordable housing supply and housing cost burdens at the national, state, and
- April 11, 2017HUD Report on Understanding Whom the LIHTC Program Serves
In 2008, Congress passed the Housing and Economic Recovery Act (HERA), requiring each state housing finance agency (HFA) that administers the Low-Income Housing Tax Credit (LIHTC) to submit certain demographic and economic information on tenants in LIHTC units to the U.S. Department of Housing and Urban Development (HUD) according to standards determined by the Secretary
- October 26, 2016IRS Rev. Proc. 2016-55 State LIHTC and PAB Caps
For calendar year 2017, the amount used under § 42(h)(3)(C)(ii) to calculate the State housing credit ceiling for the low-income housing credit is the greater of (1) $2.35 multiplied by the State population, or (2) $2,710,000.