Low income housing tax credit (LIHTC): how it works and who qualifies

Last updated 2026-07-10

What is the Low Income Housing Tax Credit (LIHTC) program?

LIHTC is the federal tax incentive that pays for most affordable rental housing built in America. Congress put it in Section 42 of the Internal Revenue Code as part of the Tax Reform Act of 1986, and it has run continuously ever since. ^[1]

Here is the core mechanic. The federal government hands each state a pot of tax credits based on population. State housing finance agencies (HFAs) then award those credits to private developers who compete for them. A developer who wins sells the credits to investors, usually banks and insurance companies, who use them to cut their federal tax bill dollar-for-dollar over 10 years. The cash from that sale pays to build or rehab the apartments. In exchange, the developer agrees to keep rents affordable for at least 30 years.

This is the largest source of financing for affordable rental housing in the country. HUD estimates LIHTC has financed more than 3.6 million units since 1987, adding roughly 100,000 to 125,000 affordable units a year. ^[2]

Two types of credits exist. The 9% credit funds new construction or heavy rehab that doesn't use tax-exempt bonds. It's more competitive and produces deeper affordability. The 4% credit pairs with tax-exempt bond financing. It's easier to get but harder to make pencil out on its own. Both live under IRC Section 42. ^[1]

If you're a renter, a LIHTC building looks like any ordinary apartment complex. No voucher. No monthly check to your landlord. You sign a lease, pay rent, and the landlord just can't charge you more than the capped amount. That's the thing that separates LIHTC from a housing choice voucher program.

How does LIHTC differ from Section 8 housing?

The short version: Section 8 subsidizes people, LIHTC subsidizes buildings. Both use income limits, both help low-income renters, and people mix them up constantly. But the money moves in totally different directions.

Section 8 (the Housing Choice Voucher program) is a direct rental subsidy. A voucher holder pays roughly 30% of adjusted gross income toward rent, and the housing authority pays the rest straight to the landlord. The subsidy follows the tenant. ^[9]

LIHTC is a supply-side tax credit. No money goes to the tenant or landlord per household. The government subsidized the construction of the building years before you moved in. The developer caps rents at a percentage of the Area Median Income (AMI) for your area, and you pay that capped rent in full. If your income is too low to cover even the capped rent, LIHTC alone won't rescue you.

Feature	LIHTC	Section 8 Voucher
Subsidy type	Tax credit to developer	Monthly payment to landlord
Benefit follows tenant?	No	Yes
Rent tenant pays	Capped at % of AMI	~30% of tenant income
Income limit to apply	Yes (AMI-based)	Yes (AMI-based)
Waitlist common?	Yes, for the building	Yes, often years-long
Federal administrator	IRS + state HFAs	HUD + local PHAs
Works with vouchers?	Yes, in many cases	Yes, if landlord agrees

You can stack both. A LIHTC property can accept rental assistance vouchers, and many do. Rent a LIHTC unit with a voucher and the voucher covers the gap between your 30% contribution and the capped LIHTC rent. That's one of the better setups in affordable housing, because the LIHTC cap gives the voucher a price ceiling to work against instead of an open market.

Who qualifies for LIHTC housing and what are the income limits?

You qualify for a LIHTC unit if your household income falls under the property's AMI threshold, most commonly 60% of Area Median Income. The limit changes by county, metro, and household size, and HUD publishes fresh numbers every year. There's no separate government application. You apply to the building. ^[3]

Here is where it gets a little technical. Under IRC Section 42, a project must pass one of two minimum set-aside tests. The 20/50 test requires at least 20% of units go to households at 50% AMI or less. The 40/60 test requires at least 40% of units go to households at 60% AMI or less. Most projects pick 40/60, which is why the limit you actually run into at a LIHTC property is usually 60% AMI. ^[1]

Some projects set aside units at 30% AMI, the deepest affordability tier, though those usually need an extra subsidy like a voucher to stay viable. ^[3]

Geography changes everything. Say your area's median income for a family of four is $100,000. Then 60% AMI is $60,000 and 50% AMI is $50,000. But a household earning $65,000 sits well above the limit in rural Mississippi and comfortably below it in the San Francisco Bay Area. Check HUD's income limit data for your specific county or metro before you assume anything. ^[3]

Each LIHTC building runs its own application, its own waitlist, and its own preferences (veterans, seniors, families with children). A building managed by a housing authority may coordinate with public housing applications, but most don't.

The tax code itself sets no citizenship requirement for LIHTC. Individual projects often write lease terms requiring proof of legal residency, so ask each property directly.

Have a voucher and want to use it at a LIHTC property? The property has to agree to take it. Plenty do. Finding them is faster with a listing resource, and VoucherReady's property search tools let you filter for voucher-friendly LIHTC buildings in your area.

How are LIHTC rent limits calculated?

LIHTC rent is not based on what you earn. It's a fixed formula tied to AMI for an assumed household size, and it applies no matter who actually signs the lease. Two neighbors with very different paychecks can pay the identical capped rent.

The formula: maximum gross rent (including any utility allowance) for a unit set at 60% AMI equals 30% of 60% of the area's AMI, adjusted for bedroom count, not head count. HUD assumes 1.5 persons per bedroom to run the math. ^[3]

A concrete example. Say AMI for a two-person household in your area is $70,000. For a one-bedroom LIHTC unit at 60% AMI: $70,000 x 60% = $42,000, then x 30% = $12,600 a year, or $1,050 a month gross rent. If the utility allowance (HUD's estimate of what you spend on utilities not baked into rent) is $150 a month, the landlord can charge at most $1,050 minus $150, so $900.

That cap ignores your income entirely. A tenant earning $25,000 and one earning $50,000 could sit in side-by-side identical units and both pay $900. The cap protects both of them from a market-rate charge.

Units designated at 50% AMI run lower, same formula applied at 50% instead of 60%. Some buildings mix tiers: a few at 50%, some at 60%, occasionally a handful at market rate in mixed-income projects.

HUD publishes national gross rent data, and state HFAs publish LIHTC rent limit charts for their own jurisdictions every year. A landlord charging above the published limit is committing a compliance violation you can report to your state HFA.

How do developers apply for LIHTC credits and what is a Qualified Allocation Plan?

Developers apply to their state housing finance agency during an annual competitive cycle. The IRS writes the rules and sets the credit amounts. The state HFA decides who wins. ^[4]

The document that governs the whole thing is the Qualified Allocation Plan, or QAP. Every state must have one, and it spells out how the state ranks applications. The IRS requires QAPs to prefer projects serving the lowest incomes and projects in areas of greatest need. Past that, states set their own priorities: transit-accessible sites, rural areas, preservation of existing affordable housing, senior projects, proximity to good schools. ^[4]

Applications get scored against the QAP. High scorers win a reservation of credits. The competition is real. In most states, requests outrun the available credits by two or three times in a given year.

After winning, developers grind through the rest: lining up the remaining financing (often federal HOME funds, CDBG grants, local gap financing, sometimes HUD housing programs), pulling permits, building or rehabbing, then placing the project in service. The IRS issues the actual credits over 10 years once the building is in service and tenants are in units.

Compliance runs at least 30 years: a 15-year compliance period plus a 15-year extended use period required by law. The state HFA inspects periodically to confirm rent and income rules are being followed. Fall out of compliance and the developer faces credit recapture, meaning the IRS claws back credits already issued. That threat keeps most owners honest.

What is the LIHTC credit amount and how much money does the program allocate?

The IRS resets the per-capita 9% credit allocation for inflation every year. For 2024, states received $2.75 per capita, with a small-state minimum of roughly $3.18 million. ^[5] Nationally that runs to about $11 to $12 billion in annual credits, and because credits pay out over 10 years, the present-value investment is larger still.

The 4% credit has no separate per-capita cap. Its amount ties to how much tax-exempt bond financing the deal uses. The Consolidated Appropriations Act of 2021 fixed the minimum 4% rate at exactly 4%, which mattered a lot: before that, the rate floated with Treasury rates and had slipped below 3% in some years, choking deals. ^[6]

Investors buying credits from developers typically pay $0.85 to $1.10 per dollar of credit, depending on the market, the project's risk, and investor demand that year. That credit equity is the main affordable ingredient in the project's capital stack.

Here is what those credits actually build. The National Council of State Housing Agencies (NCSHA) estimates LIHTC produced roughly 3.6 million units across more than 31,000 projects between 1987 and 2023. ^[7] That's the majority of all affordable rental housing built in the United States over three decades.

For renters, the point is plain. The building you're applying to exists because credits were awarded years ago. By law, its affordability runs at least 30 years from the day it was placed in service.

How do you find and apply for LIHTC housing in your area?

Start with HUD's National LIHTC Database, then call each property directly. There is no real-time national vacancy list, which is genuinely frustrating and one of the program's real weaknesses for tenants. You have to work property by property.

HUD's database lists LIHTC properties by state, city, and address, with unit counts and income targeting. It's the most complete federal list there is, though it runs a year or two behind on newly placed-in-service projects. ^[2] Treat it as your map, not your live inventory.

From there, contact each property. Call or email the management office. Ask three things: do they have openings, do they have a waitlist, and do they take housing choice vouchers if you hold one. LIHTC properties run their own waitlists independently. Some are long. Some are open. Some are shut.

State HFAs often keep their own directories of the properties they funded, and those can be more current than the federal database. Search for your state's housing finance agency and look for a property directory or asset management page.

Have a voucher? Listing platforms like go section 8 include some LIHTC properties that accept vouchers. Your housing authority may also keep a list of voucher-friendly LIHTC buildings, because some PHAs do.

Seniors have more options than most people realize. A large share of LIHTC projects are age-restricted to 55+ or 62+. If you're after low income senior housing, LIHTC senior properties are often the most common choice in suburbs and rural areas where public housing barely exists.

Once you find a property with openings, applying is simple. Fill out the property's application, hand over income documentation (pay stubs, tax returns, Social Security statements), and authorize a background and credit check. The property verifies your income against the applicable AMI limit before approving you.

Can landlords use LIHTC and Section 8 vouchers at the same property?

Yes, and it's common. A LIHTC property can take housing choice vouchers, project-based Section 8, or both. Many LIHTC developments were designed from day one to layer extra subsidy on top of the tax credit financing. ^[11]

For landlords, accepting vouchers at a LIHTC property adds a layer of compliance. You're bound by both the LIHTC rent and income limits in your regulatory agreement with the state HFA, and by the lease and Housing Assistance Payment (HAP) contract terms from the local housing authority. The rent the PHA approves under its Payment Standard has to line up with the LIHTC cap. If the Payment Standard sits below the LIHTC rent, the tenant may cover the difference, subject to the 40% of income limit at initial lease-up.

Thinking about whether to accept vouchers in a LIHTC property you own or manage? The compliance calendar is busier but not overwhelming. Track three things: annual income recertification for LIHTC (required by IRC Section 42), annual recertification for the voucher program (required by HUD), and HQS or NSPIRE inspection requirements from the PHA. Keeping the dates aligned takes organized property management, nothing more.

One thing new LIHTC owners miss: the 30-year affordability period runs even if the property changes hands. The regulatory agreement recorded against the deed travels with the building. Buy a LIHTC property and you inherit the obligation automatically.

If you want a practical reference on your obligations and how to set a property up for voucher acceptance, VoucherReady's landlord kit walks through the HAP contract basics and what to expect from the inspection process.

What are tenant rights in LIHTC housing?

LIHTC tenants have fewer federal protections than most people expect. The tax credit program is basically a compliance contract between the developer and the IRS, refereed by the state HFA. IRC Section 42 gives no private right of action to individual tenants. The statute does not let you sue your landlord for breaking LIHTC rules. ^[1]

Enforcement runs through the state HFA instead: the agency monitors compliance, reports violations to the IRS, and the IRS can recapture credits from the owner. That's a heavy deterrent for owners. It's not a direct remedy for you if you're overcharged or wrongfully evicted.

In practice, your rights in a LIHTC building come from four places:

1. State and local landlord-tenant law, which applies the same as in any private rental. 2. Fair Housing Act protections, which cover all rental housing. 3. Any extra rights written into the regulatory agreement between the developer and the state HFA. Some HFAs include tenant notification rules, just-cause eviction protections, or right-to-return provisions. This varies a lot by state. 4. If you also hold a Section 8 voucher, the full voucher-program protections apply, including grievance procedures through the PHA.

Think your LIHTC landlord is charging above the legal cap or letting the property fall apart? Two moves. File a complaint with your state HFA's compliance or asset management department. File with HUD's Fair Housing office if discrimination is involved. You can find your state HFA through NCSHA's directory. ^[7]

For broader help, see tenant rights and your state's landlord-tenant statutes.

What happens when a LIHTC property's affordability period ends?

This is one of the most real and least-covered risks in affordable housing. LIHTC properties must stay affordable at least 30 years: a 15-year compliance period plus a 15-year extended use period. After year 30, the owner can, in many cases, flip the property to market rate. ^[1]

A wave of properties placed in service in the early 1990s started hitting their 30-year expiration windows around 2020 to 2025. The National Low Income Housing Coalition and other groups have flagged this as a serious preservation problem, with hundreds of thousands of units at risk of losing affordability over the coming decade. ^[10]

Some states built stronger protections into their QAPs and regulatory agreements, requiring longer terms (45 or 60 years) or giving nonprofits and tenants a right of first refusal before conversion. California, for one, requires a 55-year affordability period for most LIHTC projects. Others hold to the federal floor of 30 years.

Federal law does include a limited right of first refusal after year 15 for certain qualified nonprofits. IRC Section 42(i)(7) lets a qualified nonprofit that was part of the original ownership buy the property for a price tied to the outstanding debt. It's not a tenant protection, but it opens a path for mission-driven owners to keep a building affordable past year 30. ^[1]

If you rent in a LIHTC building, find out when it was placed in service (your state HFA's database usually lists this). Coming up on year 28 to 30? Ask your property manager what the plan is. Some owners apply for fresh LIHTC credits to recapitalize and extend affordability. Others walk.

How does the LIHTC program affect housing affordability at a national scale?

LIHTC is the scaffolding of American affordable housing. Take it away and the supply of affordable rental units shrinks dramatically. That's not hype, it's arithmetic.

The program produces 100,000 to 125,000 affordable units a year. ^[2] For scale, about 2.3 million housing choice vouchers are active nationally. ^[12] LIHTC's cumulative 3.6 million units beat every other affordable housing program combined.

The research on LIHTC's real-world effects is mixed. A 2019 study by Diamond and McQuade in the Journal of Political Economy found LIHTC development in low-income areas cut local crime and modestly raised nearby property values, while construction in higher-income areas had messier neighborhood effects. ^[8] The study covered 15 years of data across the whole program and is the most thorough neighborhood-impact work available, though its conclusions get argued over.

The program has critics. Because it runs through the tax code and depends on private investment, a real slice of the credit value lands with financial middlemen instead of housing. Some housing economists say direct grants or more vouchers (like the housing choice voucher program) would buy more units per federal dollar. Others counter that the tax credit has pulled in decades of steady private capital in a way that annual appropriations never have.

The practical truth for low-income renters: LIHTC and vouchers are complements, not rivals. Vouchers reach the lowest-income households (30% AMI and below) who can't afford even capped LIHTC rents. LIHTC builds the buildings where those vouchers get used. Neither is enough alone, and the open section 8 waiting lists mess shows the gap: millions of eligible households stuck waiting for a voucher, while LIHTC adds roughly 100,000 units a year to the pool.

Frequently asked questions

Is LIHTC housing the same as public housing?

No. Public housing is owned and run by a local housing authority using federal funds, and rent is set at roughly 30% of tenant income. LIHTC housing is privately owned, built with tax credit equity, and rent is capped at a percentage of Area Median Income no matter what the tenant earns. Many LIHTC properties look identical to market-rate apartments. They have no tie to a housing authority unless the authority itself won LIHTC credits to build the project.

Do I need a voucher to live in LIHTC housing?

No. LIHTC housing is open to any household whose income falls below the property's AMI threshold, usually 50% or 60% of Area Median Income. You pay the capped rent yourself, no voucher needed. But if your income is very low (below 30% AMI), even the capped rent may be out of reach, and you'd need a voucher or other subsidy on top of the LIHTC unit to make it work financially.

How long is the waitlist for LIHTC housing?

It depends entirely on the property. Some LIHTC buildings have no waitlist and immediate vacancies. Others, especially in high-cost cities, run waitlists measured in years. There's no national or centralized waitlist for LIHTC housing. You apply to each building on its own. Calling the property management office directly is the only way to get accurate waitlist information.

What is the difference between 4% and 9% LIHTC credits?

The 9% credit funds new construction or heavy rehab that doesn't use tax-exempt bonds. It's more competitive but produces more equity per dollar of credit. The 4% credit pairs with tax-exempt bond financing, carries no per-capita cap, and is easier to get but generates less equity, so deals often need extra subsidy. Federal law permanently set the minimum 4% rate at exactly 4% in 2021.

Can a landlord evict a LIHTC tenant for any reason?

LIHTC itself grants no special eviction protection beyond standard landlord-tenant law, so evictions follow state law. Some state housing finance agencies wrote just-cause eviction rules into their regulatory agreements, meaning landlords there need a documented reason to evict, but that's state-by-state, not a federal LIHTC standard. If you also hold a housing choice voucher, additional PHA protections may apply.

My income went up. Can I be evicted from a LIHTC unit?

Generally no, not right away. Under the Next Available Unit rule in IRC Section 42, if your income climbs above the qualifying limit after move-in, the owner must offer the next available comparable unit to a qualified household, and rules kick in about how your unit counts toward the set-aside. Outright eviction just for an income increase is not the standard outcome. The exact process depends on how the property's regulatory agreement is written.

Who oversees LIHTC compliance and where do I report violations?

The IRS sets the rules, but day-to-day compliance monitoring runs through your state's housing finance agency. If you believe your landlord is charging above the legal cap, improperly denying an application, or violating the regulatory agreement, file a complaint with your state HFA's compliance or asset management department. The HFA can inspect the property and report noncompliance to the IRS, which can trigger credit recapture from the owner.

How do LIHTC income limits compare to Section 8 income limits?

Both use HUD's Area Median Income figures, so the AMI dollar amounts match. Section 8 vouchers generally target households below 50% AMI, with priority for very low-income households at or below 30% AMI. LIHTC most often serves households up to 60% AMI. A household at 55% AMI might qualify for a LIHTC unit but not hold a voucher, because voucher programs are so oversubscribed that waitlists are long and closed in most cities.

Does LIHTC housing accept Section 8 vouchers?

Many LIHTC properties do, but it isn't required. Each owner decides whether to accept housing choice vouchers. When both programs layer, the LIHTC limit caps the rent, and the voucher covers the gap between the tenant's 30% contribution and that cap. If you have a voucher, ask specifically whether the LIHTC property you're applying to accepts them before you go any further.

What is a Qualified Allocation Plan and why does it matter to tenants?

A Qualified Allocation Plan (QAP) is each state's policy document for deciding which LIHTC applications win credits. It sets priorities: deepest affordability, rural areas, seniors, transit access, and so on. It matters to tenants because the QAP shapes what kind of affordable housing actually gets built in your state. A QAP that prioritizes 30% AMI units produces housing the lowest-income renters can reach. One focused on 60% AMI units serves a higher tier.

How long does affordability last in a LIHTC building?

Federal law requires at least 30 years: a 15-year compliance period plus a 15-year extended use period. After year 30, the owner may convert to market rate unless the state imposed a longer term in its regulatory agreement. California requires 55 years. Some states require 40 or 45. If you live in a LIHTC building, ask your state HFA when it was placed in service so you can gauge how many affordable years remain.

Where can I find a list of LIHTC properties near me?

HUD publishes the National LIHTC Database at huduser.gov, searchable by state and city. It includes address, unit count, and income targeting for properties placed in service since 1987. Your state's housing finance agency often keeps a more current property directory. From there, you contact each property directly to ask about vacancies and waitlists. There's no single real-time national vacancy database for LIHTC housing.

What is the income limit for LIHTC housing in 2024?

HUD sets income limits annually, and they vary by metro or county, household size, and the unit's AMI tier (30%, 50%, or 60%). Most LIHTC units sit at 60% AMI. HUD posts the current year's limits at huduser.gov. A family of four at 60% AMI might face a limit anywhere from around $40,000 in a low-cost rural county to over $90,000 in a high-cost metro.

Can seniors use LIHTC housing?

Yes, and many LIHTC properties are built specifically for seniors. Age-restricted LIHTC developments typically limit residency to households where at least one member is 55 or 62, qualifying under the Housing for Older Persons Act (HOPA). Senior LIHTC properties often include accessible unit designs, common areas, and on-site services. They're one of the most common forms of affordable housing for older adults in suburban and rural areas.

Sources

1. Internal Revenue Code Section 42, Cornell LII: IRC Section 42 created LIHTC in the Tax Reform Act of 1986, sets the 20/50 and 40/60 minimum set-aside tests, 30-year affordability period, and nonprofit right of first refusal.
2. HUD User, HUD's National LIHTC Database: LIHTC has financed more than 3.6 million housing units since 1987 and adds roughly 100,000 to 125,000 units per year.
3. HUD User, FY2024 Income Limits: HUD publishes annual AMI income limits by area used to set LIHTC eligibility and rent caps; LIHTC rents are calculated as 30% of the applicable AMI percentage.
4. IRS, Low-Income Housing Tax Credit program information: State housing finance agencies allocate LIHTC credits under a Qualified Allocation Plan that must prefer projects serving the lowest incomes and areas of greatest need.
5. IRS Revenue Procedure 2023-34, per capita credit amounts: For 2024, states receive $2.75 per capita in 9% LIHTC, with a small-state minimum of approximately $3.18 million, indexed for inflation annually.
6. Consolidated Appropriations Act of 2021, Public Law 116-260: The Consolidated Appropriations Act of 2021 permanently set the minimum 4% LIHTC credit rate at exactly 4%.
7. National Council of State Housing Agencies (NCSHA), LIHTC program data: NCSHA estimates LIHTC produced approximately 3.6 million units across more than 31,000 projects between 1987 and 2023.
8. Diamond and McQuade, 'Who Wants Affordable Housing in Their Backyard?', Journal of Political Economy, 2019: A 2019 study of 15 years of LIHTC data found that LIHTC development in low-income areas reduced local crime and modestly increased nearby property values.
9. HUD, Housing Choice Voucher Program overview: Housing Choice Voucher holders pay approximately 30% of adjusted gross income toward rent; the housing authority pays the remainder directly to the landlord.
10. National Low Income Housing Coalition, Affordable Housing Database: NLIHC has flagged the expiration of 30-year LIHTC affordability periods beginning around 2020-2025 as a significant preservation risk for hundreds of thousands of units.
11. HUD, Multifamily Housing program overview: LIHTC properties can layer project-based Section 8 and housing choice vouchers; HUD oversees compliance with HAP contract terms at properties using both programs.
12. HUD User, Picture of Subsidized Households: Approximately 2.3 million active housing choice vouchers are in use nationally as of recent program data.