Low Income Housing Tax Credit
The Low Income Housing tax credit program ( LIHTC ) is the most pivotal resource for creating affordable housing in the United States. The LIHTC program was created by the Tax Reform Act of 1986. The Treasury Department and State Housing Finance Agencies administer the program. Due to this Tax Credit there has been a surge in recent years of new multifamily LIHTC communities, housing many of our country’s low income families. Most Communities are located in urban areas often causing a positive revitalization of low-income neighborhoods. This provides sustainable and decent living conditions for families in need.
The LIHTC program allocates approximately $8 Billion in the annual budget to state and local LIHTC agencies so that they can issue tax credits for the acquisition, new construction, or rehabilitation of rental housing to households having less income. For the community developer/owner to obtain the tax credits they need to meet one of the following:
- A min of 20% of units must be rented by tenants with incomes less than 50% of Area Median Income
- A min of 40% of units must be rented by tenants with incomes less than 60% of the Area Median Income
LIHTC is the largest rental housing production program in history and significantly outnumbers the other government-funded rental units available. A benefit of LIHTC Properties is that the rent is not based on the tenants income. Tax credit units must be affordable to households. The rents do not vary according to each individual family or tenant thus, reaching a slightly higher income group (while still maintaining people who are between 50-60% of Area Median Income).
The downfall of this program is the tax credit provided a surge of new construction and redevelopment projects–which one would think would be a great thing. Unfortunately, there are some properties that have reached their required 15 year affordability restrictions and may choose to bring rents from that property to market rates. At times this is unavoidable, as the properties at this time may need high cost renovations. New LIHTC projects have been mandated to affordability restrictions for a 30 year period in addition to the legislature trying to entice owners to extend the affordability by passing more tax incentives.
The LIHTC data at the property and tenant-level is collected by the Department of Housing and Urban Development. The data collected by the HUD at the property level includes information on the size, unit mix, and location of individual projects.
Historic ( HTC ) and New Markets Tax Credits ( NMTC )
The Federal Historic Preservation Tax Credit program is familiar with the significance of the private sector investment in the rehabilitation and re-use of historic buildings and encourages the same.
The program is administered by the National Park Service and the Internal Revenue Service in partnership with the State Historic Preservation Offices. There are some states offering tax credits for historic buildings and asking the applicants to apply to Federal and State programs together.
The Community Development Financial Institutions Fund or CDFI is a program within the U.S Department of the Treasury that administers the New markets tax credit. As long as a property is within the low-income community recognized by the U.S. Department of the treasury, NMTC can finance a range of property types such as mixed-use multifamily property.
Its investors usually invest in intermediary entities such as Community development entities which later on provide funding to the project level ownership entity. There are limited occasions in which HTC and NMTC can be used in FHA-insured projects.
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