Private Housing
As part of the 1986 Tax Reform Act, Congress established the Low-Income Housing Tax Credit (LIHTC) as an incentive to private developers to invest in affordable housing. This is the one part of that legislation which, rather than attempt to dismantle tax shelters, actually created a new one. The program offers two types of tax credits: a 9% credit and a 4% credit.
The 9% Credit. The 9% tax credit refers to the percentage of costs a private developer incurs in building or rehabilitating an affordable housing property that may be claimed as a tax credit. HUD allots a certain amount of 9% tax credits to each state for distribution to private developers through a competitive bidding process. In 2020, that amount is fixed at the greater of $3.2 million or $2.81 per capita through 2021. A state may distribute up to $3.2 million in tax credits to qualifying developers. States with larger populations may receive a larger distribution.
Eligible projects must meet that state’s Qualified Allocation Plan, which outlines the necessary conditions for bidders for the credit. An allocation plan may require, for example, that properties be located in certain low-income areas, provide 40% of the units to renters earning less than 60% of the area’s median income, or offer low-income housing for up to 50 years.
A DPP whose application is accepted by the state will be allocated a maximum of 9% of t