Established by the Tax Reform Act of 1986, this program authorizes a federal tax incentive for the construction or rehabilitation of rental housing units occupied by low-income households. State housing credit agencies award the limited annual supply of tax credits to developers of projects picked in application cycles. The LIHTC provides the owner with a tax credit to offset federal income tax for a 10-year period. The size of the tax credit is based on the construction or rehabilitation costs for the low-income units. Tenants of tax credit units may not have initial incomes greater than 50% or 60% of the area median income, adjusted for family size. The maximum rent charged to low-income tenants is 30% of the maximum income for a qualified low-income household.
At least 20% of the units in a tax credit project must be occupied by households earning 50% or less of the area median income. Alternatively, at least 40% of the units must be occupied by tenants earning 60% or less of area median income, adjusted for household size.
The preceding "set-aside" percentage and the rent limit for low-income units must be met continuously for the tax credit project for the compliance period, which is at least 15 years.
Housing tax credits may be claimed for all of the low-income housing acquisition and development expenditures for a project without getting an allocation of credits from the state's annual volume cap, provided 50% or more of the project expenditures are financed with the proceeds from tax-exempt private activity bonds issued for the project.
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