The Low-Income Housing Tax Credit, or LIHTC, is a federal housing finance program that uses tax credits to pull private equity into rental development. In practice, a developer agrees to reserve a set share of units for lower-income households at rent limits tied to area median income, then sells the credits to investors for cash that helps fund construction or rehabilitation. State housing finance agencies allocate the credits competitively, which means the project has to fit both the federal rules and the state’s own priorities for what gets built.
There are two main credit structures. The 9% credit is the competitive version and is usually used for new construction or substantial rehabilitation, while the 4% credit is typically tied to tax-exempt bond financing and is more automatic. The affordability restrictions generally last decades, usually 30 years, though the statute includes a qualified-contract path that can shorten the federal compliance period after 15 years.
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