Low-Income Housing Tax Credits and the HUD 223(f) Loan Program
Low-Income Housing Tax Credits, or LIHTCs, are used to either construct new rental buildings or renovate existing buildings. Two annual tax credits are available for HUD multifamily financing. The nature of the project dictates the credit received. The 4% tax credit (30% subsidy) is for the acquisition of existing buildings for rehabilitation and new construction financed by tax-exempt bonds. The 9% tax credit (70% subsidy) is usually for new construction and substantial rehabilitation without federal subsidies. Either tax credit can be claimed for up to 10 years. The percentages are approximately equivalent to 4% or 9% of the project’s construction cost. The Internal Revenue Code specifies the subsidy levels (30% and 70%), not the tax credits (4% or 9%).
What are the Requirements for the LIHTC Program?
In order to qualify for the LIHTC program, a building must reserve a certain number of units for low-income residents. In most cases, they must either follow one of two “rules”: the “20/50 rule” or the “40/60 rule.” The 20/50 rule requires that at least 20% of a property’s units be rented to tenants who earn 50% or less of the area median income (AMI), while the 40/60 rule requires that at least 40% of a property’s units be rented to tenants who earn 60% or less of the AMI.