Low Income Housing Tax Credit Programs Explained
The Low Income Housing Tax Credit — commonly called the LIHTC (pronounced "lie-tech") — is one of the largest and most important tools the federal government uses to create affordable rental housing. If you've ever applied for an apartment and seen the phrase "tax credit property" or "LIHTC community," this is what's behind it. Understanding how the program works helps renters know what to expect, and helps developers, investors, and policymakers understand the landscape.
What Is the Low Income Housing Tax Credit?
The LIHTC program was created by Congress in 1986 as part of the Tax Reform Act. It doesn't give money directly to low-income renters — instead, it gives federal tax credits to developers who build or rehabilitate affordable rental housing. Those developers typically sell the credits to investors, raising private capital to fund construction. In exchange, the developer agrees to rent a portion of the units to income-qualified tenants at restricted (below-market) rents for an extended period.
The result: more affordable housing gets built and preserved using private investment, with the federal government incentivizing it through the tax code rather than direct spending.
The program is administered at the federal level by the IRS, but each state receives an annual allocation of credits and distributes them through a state housing finance agency (HFA). Because states control how credits are awarded, the details of who gets funding — and what kinds of projects get prioritized — vary significantly from state to state.
The Two Types of LIHTC Credits 🏗️
There are two distinct categories of tax credits under LIHTC, and they apply to different kinds of projects:
| Credit Type | Common Name | Typical Use |
|---|---|---|
| 9% Credit | Competitive credits | New construction or substantial rehabilitation without other federal subsidies |
| 4% Credit | Non-competitive credits | Projects financed with tax-exempt bonds; also used for acquisition |
9% credits are more valuable and highly competitive. Developers apply to their state HFA and compete against other projects for a limited annual allocation. Because demand far exceeds supply, states use a Qualified Allocation Plan (QAP) to score and rank applications based on local priorities — things like serving very low-income households, locating projects near transit, or targeting special populations like veterans or seniors.
4% credits are generally paired with tax-exempt private activity bonds and are not subject to the same competitive cap, though they're still subject to bond volume limits. They generate less equity per dollar of credit but allow for a greater volume of projects overall.
The right credit type for a given project depends on its financing structure, size, and eligibility — decisions made by developers and their advisors.
How LIHTC Properties Work for Renters
If you live in or are applying to a LIHTC property, here's what that actually means for you:
Income Limits
To qualify for a LIHTC unit, your household income must fall at or below a percentage of the Area Median Income (AMI) for your region. Common thresholds are 50% or 60% of AMI, though some projects serve households at deeper income levels, like 30% or 40% of AMI, depending on how the project was structured and what the state prioritized.
AMI is calculated by the Department of Housing and Urban Development (HUD) and varies by location and household size. What qualifies as "low income" in a high-cost metro area will look very different from the same threshold in a rural county.
Rent Limits
LIHTC rents are set based on AMI — not on your actual income. This means the rent is capped at a level intended to be affordable to someone at the applicable AMI threshold, regardless of what you personally earn. This is an important distinction: your rent doesn't automatically adjust if your income changes, though your eligibility to remain in the unit may be affected depending on the property's rules and local regulations.
Affordability Periods
Developers who use LIHTC must keep the units affordable for a minimum of 30 years, though the initial compliance period required by the IRS is typically 15 years, followed by an extended use period of at least another 15 years. States often require longer commitments as a condition of awarding credits. After the affordability period ends, the property may or may not continue to be used as affordable housing — a concern advocates and policymakers actively track as the first wave of LIHTC properties reaches the end of their compliance periods.
What LIHTC Is Not 🏠
It's easy to confuse LIHTC with other housing assistance programs. Here's how it differs:
- It is not the same as Section 8 / Housing Choice Vouchers. Vouchers help individual households pay rent anywhere that accepts them. LIHTC restricts the rents at specific buildings — it's a property-based program, not a person-based subsidy.
- It is not public housing. LIHTC properties are privately owned and operated, often by nonprofit or for-profit developers.
- It does not guarantee housing. LIHTC units still have waitlists, application processes, and landlord screening criteria. Qualifying by income doesn't guarantee you'll be offered a unit.
Some LIHTC properties do accept housing vouchers, and some units within a LIHTC building may be deeper-subsidized with project-based rental assistance. The mix varies widely by property.
How Credits Get Allocated: The State Role
Because states control how LIHTC credits are distributed, where you live significantly shapes what types of projects get built. Each state's Qualified Allocation Plan (QAP) reflects local housing priorities. One state might heavily favor rural development; another might prioritize transit-oriented projects in urban cores. Some states place greater weight on serving extremely low-income households; others emphasize community amenities or proximity to good schools.
This decentralized design means the affordable housing landscape looks different in every state — both in terms of what gets built and where applicants fall in the priority order when they apply.
Finding and Applying to LIHTC Housing
LIHTC properties are privately managed, so there is no single national application portal. 🔍 To find LIHTC housing in your area:
- HUD's Resource Locator and state HFA websites often maintain searchable databases of affordable properties.
- Local housing authorities can direct you to nearby tax credit communities.
- 211.org connects people to local housing resources, including affordable rental listings.
When you apply, expect to verify your household income, size, and other eligibility factors. Each property manages its own waitlist and screening process. Waitlists at desirable LIHTC properties can be long — sometimes years — so applying early and to multiple properties is generally wise.
Key Variables That Affect Your Situation
Whether LIHTC housing is a viable option for you — and what the experience looks like — depends on factors only you can assess:
- Your household income relative to local AMI — are you within the qualifying range?
- Your household size — AMI limits scale with household size, so thresholds differ.
- Your location — credit availability, unit supply, and waitlist lengths vary dramatically.
- The specific property — each LIHTC development has its own income tiers, rent levels, unit types, and preferences (some prioritize veterans, seniors, or people with disabilities).
- Your rental history and credit — LIHTC properties are still private rentals with their own screening criteria.
The LIHTC program creates the housing; navigating the application process and determining whether a specific property fits your circumstances is something each household works through based on their own situation and needs.
