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The Basics: Low-Income Housing Tax Credits

The Basics: Low-Income Housing Tax Credits

Helping build affordable housing in support of strong communities.

Created to promote the rehabilitation and new construction of affordable low-income rental housing, the Low-Income Housing Tax Credit (LIHTC) program supports those working to develop housing for families, seniors, residents of public housing, those with special needs and Section 8 tenants.


LIHTC Overview

LIHTCs are for new construction or renovation projects that create affordable rental housing for people facing financial challenges in urban and rural areas. Typical projects include apartment complexes, rental townhomes, mixed-income and mixed-use properties, supportive housing for those with special needs and independent living facilities for seniors.

There are two types of LIHTCs:

  • A 9 percent tax credit covers new construction projects that use additional subsidies or rehab projects that include the cost to acquire existing buildings. Partnerships that are seeking an allocation of 9 percent LIHTC must submit an application to the state housing agency, which reserves a portion of total tax credits for partnerships with the best applications.
  • A 4 percent tax credit supports new construction projects without any additional federal subsidies. To obtain this type of tax credit, a partnership must first apply for tax-exempt bonds to be issued on its behalf. An allocation of bonds leads to a non-competitive application process for the tax credits.

LIHTCs can be combined with Historic Tax Credits (HTCs) and Renewable Energy Tax Credits (RETCs).

LIHTCs are claimed over a 10-year period but require compliance for a 15-year period. State housing agencies will also impose an “extended use period,” which requires the property to keep LIHTC restrictions in place for a specified number of years after the building is operational.

Because working within the LIHTC arena requires careful attention to compliance requirements, it is important to assemble a team with deep knowledge of LIHTC regulations.


LIHTC Qualification Criteria

To qualify for credits, a project must have a specific proportion of units set aside for low-income households. Rent is limited to 30 percent of a household’s qualifying income. Households may earn a maximum of 60 percent of area median income for the county in which they live, as determined by the Department of Housing and Urban Development. Properties have minimum set-asides determining how many units must be rented to low-income households and the income levels of those tenants.

  • 20/50 minimum set-aside: A project must rent out at least 20 percent of its total residential units to low-income households that earn less than 50 percent of the gross area median income.
  • 40/60 minimum set-aside: A project must rent out at least 40 percent of its total residential units to low-income households that earn less than 60 percent of the gross area median income.

A Dedicated Team

Our experienced professionals are experts in LIHTCs and can help provide the financing and guidance you need.

Portfolio Highlights

We have a strong track record of investing in the rehabilitation and construction of affordable low-income rental housing.

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U.S. Bank and its representatives do not provide tax or legal advice. Each tax and financial situation is unique. Consult your tax and/or legal advisor for advice and information concerning a particular situation.

U.S. Bank is not responsible for and does not guarantee the products, services or performance of its affiliates and third parties.

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