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Program / LIHTC
Low-Income Housing Tax Credit
The federal tax credit that finances most new affordable rental housing in the United States, allocated by state housing finance agencies under a per-capita annual ceiling. VerisGov maps the structure and keeps the moving parts current.
At a glance
- Program
- Low-Income Housing Tax Credit (LIHTC).
- Administering agency
- The Internal Revenue Service and the U.S. Department of the Treasury define and oversee the credit; state housing finance agencies allocate it to projects.
- Statutory authority
- Section 42 of the Internal Revenue Code, enacted by the Tax Reform Act of 1986, as amended.
- Funding mechanism
- A federal tax credit, not a cash grant. Each state receives an annual per-capita credit ceiling, with a small-state minimum, under Section 42; unused or returned credit may be carried forward and then flows to a national pool.
- Money flow
- State housing finance agencies allocate credits to projects via a qualified allocation plan; developers sell credits to investors for equity; owners claim the credit against federal tax liability over a multi-year period.
- Who has a stake
- Low-income renters; affordable-housing developers and owners; private equity investors and syndicators; state housing finance agencies; and the IRS and Treasury.
What it is
The Low-Income Housing Tax Credit is a federal income tax credit that subsidizes the acquisition, rehabilitation, and new construction of rental housing affordable to lower-income households. Created by the Tax Reform Act of 1986 and codified at Section 42 of the Internal Revenue Code, it is the primary federal tool for producing affordable rental housing and is administered through the tax system rather than as a direct spending grant.
Unlike a grant, LIHTC delivers value as a reduction in federal tax liability claimed over a multi-year period by the owners and investors of qualifying affordable-housing projects. Developers typically sell the credits to private investors in exchange for equity, which lowers the amount of debt a project must carry and makes below-market rents financially feasible. The credit is reserved through allocation and claimed annually once a building is placed in service and occupied by income-qualified tenants.
The program is federally defined but state administered. Each state and certain other allocating agencies receive an annual credit ceiling set by a per-capita formula in the Internal Revenue Code, with a statutory minimum for small states. State housing finance agencies award credits to specific projects through competitive allocation under a qualified allocation plan, and they enforce the income, rent, and long-term affordability restrictions that the credit requires.
Key facts
- Program Low-Income Housing Tax Credit (LIHTC).
- Administering agency The Internal Revenue Service and the U.S. Department of the Treasury define and oversee the credit; state housing finance agencies allocate it to projects.
- Statutory authority Section 42 of the Internal Revenue Code, enacted by the Tax Reform Act of 1986, as amended.
- Funding mechanism A federal tax credit, not a cash grant. Each state receives an annual per-capita credit ceiling, with a small-state minimum, under Section 42; unused or returned credit may be carried forward and then flows to a national pool.
- Money flow State housing finance agencies allocate credits to projects via a qualified allocation plan; developers sell credits to investors for equity; owners claim the credit against federal tax liability over a multi-year period.
- Who has a stake Low-income renters; affordable-housing developers and owners; private equity investors and syndicators; state housing finance agencies; and the IRS and Treasury.
What it funds
- New construction of affordable rental housing for income-qualified tenants
- Substantial rehabilitation of existing rental housing to preserve affordability
- Acquisition of existing buildings paired with rehabilitation
- Mixed-income and supportive housing developments that set aside affordable units
Always current
What VerisGov keeps current
The facts above hold for years. These move, and they are where most of the work is. The engine tracks each one against its government source, so what you see is the live state, not a snapshot that quietly went out of date.
- Each state's annual per-capita credit ceiling dollar amount and the current small-state minimum after inflation adjustment
- The current per-capita multiplier and small-state floor set in the Internal Revenue Code, which are indexed and periodically amended
- A state's current qualified allocation plan, scoring priorities, and competitive funding rounds
- Whether basis-boost provisions and any temporary statutory enhancements are currently in effect
How VerisGov covers it
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Pinned to records published by
- Internal Revenue Service and U.S. Department of the Treasury
- State housing finance agencies
Answers
Frequently asked questions
Is LIHTC a grant?
No. LIHTC is a federal tax credit, not a cash grant. It reduces federal income tax liability for the owners and investors of qualifying affordable-housing projects, claimed over a multi-year period.
Who decides which projects get credits?
State housing finance agencies allocate each state's credit ceiling to specific projects through competitive rounds governed by a qualified allocation plan. The IRS and Treasury set the federal rules under Section 42.
How does a tax credit pay for construction?
Developers usually sell the credits to private investors in exchange for equity. That equity reduces the debt a project must carry, which lets the property charge below-market rents and remain financially viable.
How does VerisGov help with LIHTC?
VerisGov maps the durable structure, the Section 42 basis, the per-capita ceiling, and the state-allocation mechanism, and keeps the volatile details current: each state's ceiling and small-state minimum, the indexed multiplier, qualified allocation plans, and any temporary enhancements. Every fact is pinned to its source.
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