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LOW
INCOME
Housing
Tax Credit |
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 Section
42 Low Income Housing Tax Credits
As
part of the 1986 Tax Reform Act, the Low Income Housing Tax Credit
("LIHTC") program was created. The program was designed to give the
private sector an incentive to invest in public housing. In order
to attract the private sector, an investor receives a tax credit,
which is determined by the qualified basis of the project, and losses
from operation and depreciation.
The program is administered by state housing agencies that award the
credits to projects within their jurisdiction based on project criteria.
Each state receives $1.75 per capita annually for distribution to
as many projects as it deems suitable. In return for the receipt of
the credits, the project has to designate specific units to be occupied
by qualified tenants and must follow the rental guidelines which include
maximum rents for those units.
LIHTC investments are made through an upper-tier partnership which
invests in numerous lower-tier (property) partnerships. The purpose
of the structure is to protect the investor through both diversification
and the isolation of property level problems.
The LIHTC program results in the construction of over 125,000 units
per year. Despite the resounding success of the program, the demand
for affordable units is estimated to be 5,000,000.
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