Low-Income Housing Tax Credit

The Low-Income Housing Tax Credit (LIHTC) is a federal program in the United States that awards tax credits to housing developers in exchange for agreeing to reserve a certain fraction of units as rent-restricted for lower-income households. The housing developers can then sell the tax credits for cash to fund the cost of development. The program was created under the Tax Reform Act of 1986 (TRA86) to incentivize the use of private equity in developing affordable housing. Projects developed with LIHTC credits must maintain a certain percentage of affordable units for a set period of time, typically 30 years, though there is a "qualified contract" process that can allow property owners to opt out after 15 years. The maximum rent that can be charged for designated affordable units is based on Area Median Income (AMI); over 51% of residents in LIHTC properties are considered Extremely Low-Income (at or below 30% AMI). Less than 10% of current credit expenditures are claimed by individual investors.

From 1987 to 2022, at least 3.65 million housing units were placed in service through the LIHTC program. As of 2012, the LIHTC program accounted for approximately 90% of all newly created affordable rental housing in the United States. A 2018 report by the GAO covering the years 2011-2015 found that the LIHTC program financed about 50,000 low-income rental units annually, with median costs per unit for new construction ranging from $126,000 in Texas to $326,000 in California.^{: 1  : 1}

In 2010, the President's Economic Recovery Advisory Board (PERAB) estimated that the LIHTC program would cost the federal government $61 billion (an average of about $6 billion per year) in lost tax revenue from participating corporations from 2008-2017, as well as noting that some experts believe that vouchers would more cost-effectively help low income households. In 2023, the LIHTC program is estimated to cost the government an average of $13.5 billion annually.