What is a 9% tax credit?
The 9% tax credit (70% subsidy) is usually for new construction and substantial rehabilitation without federal subsidies. Either tax credit can be claimed for up to 10 years. The percentages are approximately equivalent to 4% or 9% of the project’s construction cost.
Who qualifies for LIHTC?
Owners or developers must agree to meet an income test for tenants in one of three ways: At least 20% of the units must be occupied by tenants with an income that’s 50% or less of the area’s median income (AMI). For example, if $50,000 is the AMI, 20% of the tenants must have an income of $25,000 or less.
What is the difference between 9% and 4% LIHTC?
Competitive credits – A 9% annual credit is provided for eligible construction and “substantial” rehabilitation costs, and a 4% annual credit (commonly referred to as an “acquisition credit”) is applied to the acquisition cost of existing buildings.
How do you get LIHTC credits?
A typical affordable rental housing project that secures a LIHTC allocation generally benefits investors in two ways: (1) general tax savings earned by any rental property owner (not just LIHTC investors) by deducting the depreciation of the rental property plus operating losses, if any are incurred, and (2) the …
What does a tax credit apartment mean?
A tax credit property is an apartment complex or housing project owned by a landlord who participates in the federal low-income housing tax credit (LIHTC) program. The program is designed to encourage private investors to build housing for low-income populations.
How do affordable housing developers make money?
Developers borrow money from lenders based on the amount they will be able to pay off over time. Though the current market affects the terms of the loan, it’s unlikely developers will ever get a loan big enough to close the gap. To demonstrate this, we look at vacancy rates, generally an indicator of market strength.
How long does it take to get approved for LIHTC?
Applying for a Tax Credit community can be a time-consuming process. Due to all the requirements and requests, it can sometimes be overwhelming. However, if you are dedicated to the process and are both responsive and accessible during this time, typically it takes about two weeks to be approved if you are qualified.
How long does LIHTC last?
Although LIHTC properties must commit to at least 30 years of affordability, they are only subject to a 15-year “compliance period.” This is the period of time where the tax credits that have been given to developers can be taken away or “re-captured” if the property fails to comply with LIHTC regulations.
What does LIHTC mean in housing?
Low-Income Housing Tax Credit
The Low-Income Housing Tax Credit (LIHTC) program is the most important resource for creating affordable housing in the United States today.
How long does a tax credit application take?
How do tax credits work?
A tax credit is an amount of money that taxpayers can subtract directly from the taxes they owe. Unlike deductions, which lower the amount of taxable income, tax credits reduce the actual amount of tax owed.
What is the section 42 low income housing tax credit?
The Section 42 federal low income housing tax credit (LIHTC) program includes two different development funding tracks: (a) competitive tax credits and (b) tax credits available through tax-exempt bonds (also known as private activity bonds.) There are three kinds of federal tax credits:
What is the housing tax credit program?
General Information. Tax credits are awarded to eligible participants to offset a portion of their federal tax liability in exchange for the production or preservation of affordable rental housing. There are two types of Tax Credits: Competitive (9% ) and Non-Competitive (4%). The below information corresponds to the 9% Housing Tax Credit round,…
How competitive is the 9% housing tax credit round?
The below information corresponds to the 9% Housing Tax Credit round, which is highly competitive and awarded based on a Regional Allocation Formula (RAF) with additional set asides for developments at risk of losing affordability and subsidy, developments financed through USDA, and those with nonprofit owners.
How is the quantity of low income housing tax credits determined?
The quantity of low income housing tax credits is determined by eligible development costs. Accordingly, projects that utilize the 9% credit generate more federal LIHTC than do projects that utilize tax-exempt bonds.