The primary federal vehicle for affordable-housing capital — 9% and 4% credits over ten years, with a 15-year compliance period and extended-use restrictions.
What it is
Under §42, owners of qualified low-income rental buildings claim an annual Low-Income Housing Tax Credit over a 10-year credit period, but the project must stay compliant through a 15-year federal compliance period with an extended-use period generally at least 30 years. LIHTC is building-specific (each building has a BIN and Form 8609) and jointly shaped by federal law and each state’s Qualified Allocation Plan (QAP). The roughly 9% credit applies to new, non-federally-subsidized buildings; the roughly 4% credit to federally subsidized or acquisition buildings.
Where it fits
LIHTC fits a project aligned with the state QAP that can defensibly support qualified basis and a minimum set-aside, with the property-management infrastructure to maintain tenant-level compliance over a long commitment. It is often the difference between a feasible affordable-housing project and one that cannot pencil.
Eligibility — the threshold questions
- Is it qualifying residential rental property used on a non-transient basis?
- Is there a valid allocation or bond-based path?
- Does the project fit the state’s QAP, including its monitoring procedures?
- Can it satisfy an irrevocable minimum set-aside (20/50, 40/60, or the average-income test) and sustain compliance after lease-up?
How it works in practice
The credit is computed on qualified basis — eligible basis times the applicable fraction — not gross project cost. After placed-in-service, risk shifts to operations: tenant-income certification, rent restrictions, unit-status tracking, annual Form 8609-A, and state monitoring with physical inspection. Property management is part of the tax-control environment.
Documentation that holds up
- Allocation records and executed Form 8609 / BIN records
- Qualified-basis workpapers and minimum-set-aside support
- Unit-mix and rent-restriction schedules; tenant-income certification files
- Annual credit-claim support, monitoring correspondence, and recapture analysis on ownership changes
Edge cases & when another path fits
A drop in qualified basis or a disqualifying disposition can trigger recapture; QAP misalignment, operational drift, and average-income-test execution (10% increments, project-wide average not exceeding 60%) are recurring risks. LIHTC is a weaker fit when the sponsor lacks property-management infrastructure or cannot align with the local QAP.
Frequently asked questions
What is the difference between the 9% and 4% credit?
The ~9% applies to new non-federally-subsidized buildings; the ~4% to federally subsidized or acquisition buildings.
How long does compliance last?
A 10-year credit period, a 15-year compliance period, and an extended-use period generally of at least 30 years.
What triggers recapture?
A decrease in qualified basis or certain dispositions or noncompliance events.
Specific eligibility and execution thresholds vary by transaction structure, jurisdiction, and basis composition. This is a starting point for documentation discipline — not a substitute for engaged tax counsel. Nothing here is tax, legal, or investment advice.