Sign in to Fortress OSWhat is LIHTC (Low-Income Housing Tax Credit) ?
LIHTC, the Low-Income Housing Tax Credit, is a federal tax credit that pays developers to build and keep rental housing affordable. In exchange for the credit, the owner agrees to cap rents and rent a set share of units to households under an income limit, for at least 30 years.
The credit is created by Section 42 of the Internal Revenue Code. The IRS sets the rules, state housing finance agencies hand out the credits, and the owner claims them over 10 years.
To keep the credit, a property has to pass two tests every year. Enough units must be rented to income-qualified households, and the rent on those units has to stay under the published limit. Miss either one and the agency can report the property to the IRS on Form 8823, which can claw back credits already taken.
That is why LIHTC properties recertify household income on a schedule and keep the paperwork. The obligation runs for a 15-year compliance period, followed by an extended use agreement that usually adds another 15 years.
Example
A 100-unit property sets aside 40 units for households earning 60% of area median income or less. Each year the owner proves those 40 households still qualify and that their rent stayed under the 60% limit. The file for each household is the proof.
Why LIHTC matters
LIHTC is the largest source of new affordable rental housing in the United States, so most affordable operators run at least part of their portfolio under it. The paperwork is the asset: a file that cannot be evidenced at audit is a finding, and findings cost credits.
Related terms
- HOTMAHOTMA, the Housing Opportunity Through Modernization Act of 2016, is a federal law that changes how HUD programs count income and assets.
- Section 8Section 8 is the federal rental assistance program that pays part of a household's rent to a private owner.
- HOMEHOME, the HOME Investment Partnerships Program, is a federal block grant that gives states and local governments money to build, buy, or rehabilitate affordable housing.
- RD 515RD 515, also called Section 515, is the USDA Rural Development program that lends money to build and preserve rental housing in rural areas.
How Fortress handles it
- Affordable housing property management software
- Fortress Compliance
- LIHTC compliance shouldn't feel like walking a tightrope
Sources
- 26 U.S. Code § 42 - Low-income housing credit
- IRS Guide for Completing Form 8823
- HUD - Low-Income Housing Tax Credit (LIHTC) dataset
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