What is LIHTC?
What is LIHTC – Affordable housing developers use LIHTC which stands for low income housing tax credits. This is section 42 of the Internal Revenue Code (IRC). Passed back in 1986, its purpose is to provide an economic framework, incentive and mechanism to develop, build and renovate affordable housing units across the country and Puerto Rico. This program has been very successful in meeting its primary objectives as thousands and thousands of apartment units have been constructed via this federal program. Many states also have their own versions of this program.
There are two primary federal LIHTC programs that account for the majority of the affordable housing transactions in this particular industry. The 4% tax credit program and the 9% tax credit program. The 4% tax credit program is used with private activity bonds to finance these transactions while the 9% tax credit is used with regular conventional debt to finance these transactions.
Each state administers this program by issuing a primary document called the Qualified Allocation Plan (QAP) The housing objectives of each state is discussed in these plans and the QAP is updated yearly as these objectives or priorities change. This is a extremely large subject and worth your time to learn more.
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