Initiatives

The Low-Income Housing Tax Credit

(LIHTC often pronounced “lie-tech”, Housing Credit) is a dollar-for-dollar tax credit in the United States for affordable housing investments. It was created under the Tax Reform Act of 1986 (TRA86) and gives incentives for the utilization of private equity in the development of affordable housing aimed at low-income Americans. LIHTC accounts for the majority (approximately 90%) of all affordable rental housing created in the United States today. As the maximum rent that can be charged is based upon the Area Median Income (“AMI”), LIHTC housing remains unaffordable to many low-income (<30% AMI) renters.

The credits are also commonly called Section 42 credits in reference to the applicable section of the Internal Revenue Code. The tax credits are more attractive than tax deductions as the credits provide a dollar-for-dollar reduction in a taxpayer’s federal income tax, whereas a tax deduction only provides a reduction in taxable income. The “passive loss rules” and similar tax changes made by TRA86 greatly reduced the value of tax credits and deductions to individual taxpayers. Less than 10% of current credit expenditures are claimed by individual investors.

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 experts believe that vouchers would more cost- effectively help low income households.

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.

New Market Tax Credits

The Community Development Financial Institutions (CDFI) Fund in the Department of the Treasury has been authorized to administer the program. Community Development Entities (CDEs) apply to the CDFI Fund each year not for tax credits directly, but for an award of "allocation authority"-that is, the authority to raise a certain amount of capital, or Qualified Equity Investments (QEIs) from investors.
In the first year of the program (2001), the CDFI Fund awarded $1 billion in allocation authority to CDEs, enabling those CDEs to raise $1 billion in QEls from investors, which enabled those investors to reduce their federal tax liability by $390 million (or 39% of the amount they invested in the CDEs) over seven years.
For the investors to be able to claim the credits over the seven-year compliance period, the CDEs must use "substantially all" ("Sub All") of the QEIs from investors to make Qualified Low Income Community Investments (QLICIS) in Qualified Active Low Income Community Businesses (QALICBs) located in Low Income Communities (LICs).

The investments can be:

The purchase from another CDE of any loan that was a QLICI either at the time the loan was made or at the time the CDE purchases it. It is not necessary for the CDE from which the loan is purchased to have received an NMTC allocation, if the original loan was made before the CDE was certified.
Providing financial counseling or other services to qualified active low-income community businesses located in, or residents of, a low-income community.

QLICIc QEIs

Census Qualfications

QALICB

QALICB is a Qualified Active Low-Income Community Business. QALICBs are any for-profit or non-profit corporation or partnership if :

At least 50% of the total gross income of that business is derived from the active conduct of its business within any QLIC,
A substantial portion (defined as at least 40%) of the use of the tangible property of that business (whether owned or leased) is within any QLIC,
A substantial portion (defined as at least 40%) of the services performed by that business’ employees are performed in any QLIC; the business is not primarily holding collectibles.
If (2) or (3) are 50% or more than (1) is deemed to have been met.
Less than 5% of the property is attributable to collectables (e.g. art and antiques), other than those held for sale in the ordinary course of business or is attributable to nonqualified financial property (e.g. debt instruments with term in excess of 18 months).

LIC

Low Income community (LIC) is any population census tract that meets one of the following criteria.