TAX CREDITS CREATE AFFORDABLE RENTAL HOUSING

TAX CREDITS CREATE AFFORDABLE RENTAL HOUSING

By Steve Wright

In the never ending search to preserve and create more affordable rental housing, developers and nonprofits are finding ways to use more than the traditional Low-Income Housing Tax Credits (LIHTC) to get deals done.

Since 1986, the federal LIHTC Credit program has provided financing opportunities for developers to build units for low income renters.

In return for building affordable, investors receive a credit against their federal income tax liability. The program leverages roughly $6 billion in annual investment that produces more than 125,000 affordable apartments each year.

The federal government allocates LIHTC to each state based on population, with the current allocation at approximately $2 per person. Each state’s housing finance agency sets priorities then holds an annual competitive process to award the credits to the projects that best meet the priorities.

Investors use the tax credits to reduce federal tax liability. They often receive additional benefits of meeting local regulatory requirements and community development goals.

Low income tax credits typically cover about half of an affordable rental building’s total financing. The other half usually comes from city and county portions of U.S. Department of Housing and Urban Development HOME or Community Development Block Grant money, plus state or local bond money and housing trust funds.