Question 1

What is LIHTC?

Accepted Answer

LIHTC is the Low-Income Housing Tax Credit, a federal tax credit created under Section 42 of the Internal Revenue Code. It is the largest source of affordable rental housing financing in the United States, allocated by state housing finance agencies to developers and investors who agree to keep units affordable for a defined compliance period.

Question 2

How does LIHTC work?

Accepted Answer

Investors receive a dollar-for-dollar federal tax credit, claimed over 10 years, in exchange for equity in qualifying affordable housing developments. In return, the property must meet Section 42 set-aside, rent, and tenant eligibility rules for an initial 15-year compliance period plus a 15-year extended use period.

Question 3

How do I qualify for the Low-Income Housing Tax Credit as a tenant?

Accepted Answer

Tenant eligibility is based on household income relative to Area Median Income (AMI) at move-in, household composition, and student status rules. Income limits and rent limits are published annually by HUD and applied through the property's set-aside structure (for example, 40% at 60% AMI, or income averaging).

Question 4

What triggers LIHTC recapture?

Accepted Answer

Material noncompliance with Section 42 requirements, including a fall below the minimum set-aside, noncompliant units that are not corrected within the cure period, or a disposition of the building, can trigger recapture of previously claimed credits along with interest. State agencies report noncompliance to the IRS on Form 8823.

Question 5

What is the Available Unit Rule?

Accepted Answer

When an existing LIHTC household's income exceeds 140% of the applicable income limit, the next available unit of comparable or smaller size in the building must be rented to a qualifying low-income household before any market-rate rental occurs. The rule is applied building by building, not project-wide.

Question 6

How long is a LIHTC property in compliance?

Accepted Answer

Each building has a 15-year initial compliance period during which credits can be recaptured, followed by an extended use period of at least 15 additional years (often longer under state QAPs and LURAs). Many properties remain in affordability commitments for 30 to 50 years or longer.

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