Young family living in low income rental.

Low-Income Housing Tax Credit Program: Comprehensive Guide

Lauren Nowacki6-minute read

September 19, 2021


Housing can be expensive. And when you make below the median income of your area, it can feel almost impossible to find a place to live that still allows you to afford groceries and other necessities. Years ago, the government saw the need for more affordable housing options for low-income families. In an effort to make more of these properties available, it created the Low-Income Housing Tax Credit.

What Is The Low-Income Housing Tax Credit?

The Low-Income Housing Tax Credit (LIHTC) is a tax incentive for rental owners and developers who provide affordable housing for low-income residents. That means the rent they charge is considered affordable by those whose income falls below the median household income of the area.

The LIHTC, written into the Tax Reform Act of 1986, was created to get more affordable housing units out there and available to those in need. It provides federal funding for the construction or rehabilitation of these types of rental properties. Without the credit, most developers wouldn’t invest in these types of properties as they wouldn’t make a profit.

Who Qualifies For The Low-Income Housing Tax Credit?

Rental property owners and developers who provide affordable housing that meets the specific qualifications may qualify for the LIHTC program. Many different types of properties are LIHTC eligible, including single-family homes, apartment buildings, townhouses, duplexes.

While low-income families don’t qualify for the tax credit, they can qualify to live in a LIHTC program property. They must apply for residence and meet certain requirements to qualify to live there.

Low-Income Housing Tax Credit Qualifications For Owners Or Developers

Owners or developers must agree to meet an income test for tenants in one of three ways:

  • At least 20% of the units must be occupied by tenants with an income that’s 50% or less of the area’s median income (AMI). For example, if $50,000 is the AMI, 20% of the tenants must have an income of $25,000 or less.

  • At least 40% of the units must be occupied by tenants with an income that’s 60% or less of the AMI. For example, with a $50,000 AMI, 40% of the tenants must have an income of $30,000 or less.

  • At least 40% of the units must be occupied by tenants with an average income of no more than 60% of AMI and no units have tenants with an income greater than 80% of AMI. For example, with a $50,000 AMI, 40% of the tenants must have an average income of $30,000 or less and no tenant can have an income of more than $40,000.

Owners or developers receiving the LIHTC must also meet a gross rent test. This test requires that rent cannot be more than 30% of either 50% or 60% of the AMI.

For example, if the AMI is $50,000 then 50% of that is $25,000 and 60% of that is $30,000. The gross rent test states rent cannot be more than 30% of those numbers. So rent cannot exceed $625 per month ($7,500 per year) or $750 per month ($9,000 per year).

In order to earn and keep the tax credit, these properties must meet the income and gross rent tests for at least 15 years.

Since states allocate the tax credit through qualified allocation plans, properties that house very low-income families or provide affordable housing for a longer amount of time will get priority.

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Qualifications To Live In A Low-Income Housing Tax Credit Property

If you’re in need of affordable housing, an LIHTC property may be a good option for you. However, you’ll need to meet a few basic requirements and income eligibility as a single person or family. To qualify:

  • You must meet the income requirements of the specific property, which typically means you must make below a certain amount of money. Usually, you’ll need to earn less than 60% of the AMI. However, income requirements depend on the unit and the number of members in the household.

  • You can be a single person or a family with or without children.

  • There are no citizenship requirements to qualify.

Even if you meet these conditions, you could still be denied. It’s important to know the common disqualifiers that make a person ineligible to enroll in the LIHTC program. These include:

  • Poor rental history: You may be asked to provide a list of past landlords, whom the property manager can contact. If you have issues with past rentals, including late or missing payments, multiple complaints or leaving on bad terms, you may not qualify.

  • Bad credit report: You’ll likely have your credit reviewed and, while you don’t need to have good credit to qualify, a credit history of late or missing payments and other red flags may disqualify you.

  • False information: Never provide false information. Doing so will disqualify you and, more importantly, get you in trouble with the law.

  • Criminal record: A criminal record won’t automatically disqualify you most times, but it may make it more difficult to get housing. This depends on whether you were convicted, whether the crime was a felony and the type of criminal activity you were involved in. For example, someone with a history of violence or drug abuse may have a harder time finding housing. Anyone who has had a recent conviction or is on any state sex offender registry for their lifetime will not be eligible to receive housing.

How Do You Apply To Live In An LIHTC Program Property?

Follow these steps to apply for an affordable housing property that qualifies for the low-income housing credit.

Find An LIHTC Property

The first thing you’ll want to do is find a low-income housing unit. To start, you can search the LIHTC Database provided by the Department of Housing and Urban Development (HUD) or the LIHTC apartment search tool from Affordable Housing Online. It may be helpful to also reach out to a HUD-approved housing counseling agency at 1-888-995-HOPE. The property must have an open waiting list or immediate availability for you to apply. If the waiting list is closed, you’ll have to keep checking back to see if the list reopens or choose another place. Wait times for these properties may be longer depending on the property and the area.

Obtain And Complete The Application

You may be able to obtain an application online or at the property’s rental office. Keep in mind, you may be required to pay an application fee.

The application may ask specific questions about your employment, income and information about you and the members of your household (name, age, gender, etc.). When filling out the application, make sure you follow the instructions carefully. If it’s filled out incorrectly or missing information, it may be returned to you or rejected. If you’re disabled and need someone to assist you in completing the application, you can by way of reasonable accommodation.

Submit The Application

You’ll likely need to submit the application directly to the property management company. Make sure you also follow the submission requirements carefully. If you can only apply online and you submit an application in person, it may get rejected simply because it wasn’t submitted online.

What To Do After Applying For An LIHTC Program Home

Once you apply to live in a place that’s part of the LIHTC program, you’ll likely enter a waiting game. You’ll need to wait for your application to process which may take a week or more, depending on the property. If the property has immediate availability, you’ll be notified if your application was accepted after processing. If the property has a waiting list and your application is accepted, you’ll be put on the list.

If you’re put on the waiting list, keep record of your notification and confirmation number and make note of your position on the list. You’ll want to keep your login information handy and routinely check your position on the list. If any of your information changes while you are on the waiting list, make sure to contact the property manager or housing office as soon as possible to have your application updated. You may receive notices throughout your time on the waiting list. You must respond to these immediately, following the instructions carefully, or your application could be thrown out.

Once your application is accepted and you’re moved off the waiting list, you can move into your new affordable housing unit. Once you move in, you can stay in the unit as long as you follow the lease rules, even if your income increases.

If your application is denied, you can appeal it. Your denial letter will include an explanation for the denial and information on how to appeal it. Keep in mind that just because you win the appeal – if you win the appeal – you may still be denied for other reasons.

The Bottom Line: The Low-Income Housing Tax Credit Program Can Help

The LIHTC program can be beneficial for rental owners, developers and people in need of affordable housing. It provides a tax credit for those renting, building or rehabbing affordable housing units which, in turn, incentivizes them to offer more and more units. This helps make affordable housing more accessible to low-income families.

No one should ever feel bad about using this program, it’s designed to help our neighbors in need. If you don’t want to rent and wish to purchase a home of your own, it may be possible. The first step is learning how to buy a house with a low income.

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Lauren Nowacki

Lauren Nowacki is a staff writer specializing in personal finance, homeownership and the mortgage industry. She has a B.A. in Communications and has worked as a writer and editor for various publications in Philadelphia, Chicago and Metro Detroit.