LIHTC: Low-Income Housing Tax Credits Explained

The Low-Income Housing Tax Credit (LIHTC) is the largest source of affordable housing financing in the United States. Since its creation in the Tax Reform Act of 1986, LIHTC has financed the construction or rehabilitation of more than 3 million affordable units. Yet despite its scale, it's poorly understood outside the housing finance industry.

How LIHTC Works

LIHTC is a tax credit — not a grant or direct subsidy. The federal government allocates credits to states, which then award them to developers through a competitive process. Developers sell the credits to investors (typically banks and corporations), raising equity capital for the project. In exchange, developers must restrict rents and tenant incomes for at least 15 years (often 30 or more).

Two Types of Credits

There are two types of LIHTC: the 9% credit, which provides roughly 9% of eligible construction costs per year for 10 years, and the 4% credit, which provides roughly 4% per year. The 9% credit is much more valuable and is capped by state allocation; the 4% credit is available as-of-right for projects financed with tax-exempt bonds.

Rent and Income Limits

Units in LIHTC properties must be rented to households at or below 60% AMI (or 50% AMI for some projects), and rents are capped at 30% of the applicable income limit. These are the LIHTC maximum gross rents you can look up on this site.