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How Low-Income Housing Tax Credits Work

How the Low-Income Housing Tax Credit Program Works

The federal government funds the LIHTC program.

  • The U.S. Department of the Treasury issues tax credits to state governments and requires that LIHTC-funded housing stays affordable for at least 30 years.
  • In 2009, for example, each state received a maximum of $2.30 per resident.

Individual states largely control what housing gets built.

  • States control the type and location of the housing built and other relevant characteristics to best serve low and very low-income residents.

Developers apply for competitive tax credits.

  • State agencies write regulations (called “qualified allocation plans” or “QAPs”) describing how developers will be selected and open the competition for credits.
  • The agencies review and rate the developers’ applications and award the tax credit allocations to the most qualified developer(s).

Developers get funds toward construction.

  • Enterprise and other companies (called “fund managers” or “syndicators”) create funds to pool investor capital.
  • Syndicators then use these funds to purchase the tax credits from the developer in exchange for an equity stake in the housing development.
  • With capital from investors, developers can limit the amount of money they borrow to fund construction, which reduces the developers’ debt and keeps rent affordable.
  • Low-income families rent an affordable home.
  • LIHTC properties can only be rented to families whose income is at or less than 60 percent of the area median income.
  • Tenants’ rent payments are capped at 30 percent of the AMI based on bedroom size minus the utility allowance if applicable.
  • Investors purchase a 10-year tax credit.
  • The equity stake in the housing developments that investors receive provides competitive yields.
  • Investors help to revitalize the communities in which they work and live.

Introduction to LIHTC
Want a better understanding of Low-Income Housing Tax Credits and how they work? Download this helpful guide.

Tax Credit Syndication
Who We Are, What We Do.
Download our fact sheet.

Preserving Housing Credit Investment: The State of Housing Credit Properties and Lessons Learned for the Extended Use Period
In this paper, Enterprise Community Partners presents recent data that shares how some state and local housing agencies around the country are addressing the post-Year 15 Housing Credit properties.