LIHTC Basics

Low Income Housing Tax Credit investment has financed the construction of more than two million apartments for low income families and seniors since 1986. This program is an excellent example of a public-private partnership that works. Corporations can earn attractive yields and increase after-tax earnings while making a positive impact on communities across the country.

The tax code provides for federal tax credits to be allocated to State Housing Credit Agencies every year. These state agencies then allocate the credits to eligible affordable housing developments. The developers use the equity from the credits to reduce their debt burden, thus allowing developers the fiscal capacity to meet the states’ affordability requirements.

Concurrently, investors are brought in to provide equity for these developments. Investment Funds are formed as limited partnerships to provide an investor with a yield on their investment by generating federal tax benefits in the form of tax credits and tax losses through the ownership interest in the qualified affordable housing properties. These funds allow the LIHTC tax credits and passive losses to be distributed to investors who purchase the limited partner interests in these funds. Corporate investors receive tax credit benefits over a ten-year period. Depreciation, losses and/or cash flow are allocated over the entire life of the investment until disposition.