What Is LIHTC
The Low-Income Housing Tax Credit (LIHTC) is a federal tax incentive that funds the development and preservation of affordable rental housing. Investors in LIHTC projects receive dollar-for-dollar tax credits, making new construction or rehabilitation financially viable for private developers without requiring below-market rents.
How LIHTC Differs From Section 8
LIHTC and Section 8 housing vouchers operate through different mechanisms. Section 8 vouchers subsidize rent directly to landlords on behalf of tenants. LIHTC credits subsidize the development itself, allowing owners to charge lower rents from day one. A property can use both LIHTC and Section 8 vouchers simultaneously. When LIHTC properties accept voucher holders, tenants pay 30 percent of their income as rent, with the voucher covering the difference up to the Fair Market Rent.
LIHTC Rent and Income Limits
LIHTC properties must restrict rents to 30 percent of the Area Median Income (AMI) for a specified income tier, typically 50% or 60% AMI depending on the project. These income and rent limits are set annually by HUD and vary by county. A tenant earning $25,000 annually in a 60% AMI project might pay $625 per month in rent, regardless of market rates. This restriction remains in place for a minimum of 30 years, creating long-term affordability.
Compliance and NSPIRE Inspections
LIHTC properties must maintain Housing Quality Standards (HQS) and pass NSPIRE inspections just like Section 8 properties. However, LIHTC projects have additional compliance requirements. Owners must verify tenant income annually using IRS Form 4506-C, maintain rent roll documentation, and submit annual compliance reports to the state housing finance agency. Properties are subject to audit and physical inspection to ensure rent levels stay within statutory limits and units remain occupied by income-qualified residents.
Key Details
- LIHTC projects receive federal tax credits worth approximately 4 to 9 percent of development costs annually for 10 years, totaling roughly 40 to 90 percent of project cost
- Properties typically serve households earning 50% to 80% of AMI, making them accessible to families earning $25,000 to $60,000 annually depending on location and unit count
- LIHTC compliance periods last a minimum of 30 years, ensuring affordability locks in place long-term
- State housing finance agencies administer LIHTC programs and set income limits, which HUD updates each year
- Tenants in LIHTC properties have the same tenant protections and grievance procedures as Section 8 residents
Common Questions
- If I live in a LIHTC property and use a Section 8 voucher, what rent do I pay? You pay 30 percent of your adjusted gross income, up to the Fair Market Rent set by HUD. The property cannot charge you the full LIHTC rent limit if it exceeds your voucher payment standard.
- Can a LIHTC property refuse to accept my Section 8 voucher? Yes. LIHTC properties are not required to accept vouchers. If they do accept vouchers, they must follow all Section 8 rules including HQS standards, income verification, and lease requirements.
- How do I know if a property participates in LIHTC? Ask the landlord or property manager directly. You can also contact your local Public Housing Authority or state housing finance agency to request a list of LIHTC properties in your area.