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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 credit is not a grant that clears once. It is a 15-year compliance period, followed by an extended use agreement that usually runs 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.
How Fortress handles it
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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