Low-Income Housing Tax Credit (LIHTC) Properties: A Renter's Guide

The Low-Income Housing Tax Credit program is the largest source of affordable rental housing financing in the United States, producing more than 3.6 million housing units since its creation under the Tax Reform Act of 1986 (IRS, LIHTC Program Overview). This page explains what LIHTC properties are, how the program determines rent limits and eligibility, the common situations renters encounter in these buildings, and the boundaries of renter protections that apply. Understanding these mechanics helps renters navigate income certification, rent calculations, and lease obligations specific to tax credit housing.

Definition and scope

LIHTC properties are privately owned rental buildings that receive federal tax credits in exchange for committing a defined share of units to households at or below specified income thresholds. The program is administered jointly: the IRS issues the credits under 26 U.S.C. § 42, while each state's Housing Finance Agency (HFA) allocates credits to developers according to a Qualified Allocation Plan (QAP).

Two compliance elections govern income and rent limits:

• The 20/50 test — at least 20% of units must be reserved for households earning no more than 50% of Area Median Income (AMI).
• The 40/60 test — at least 40% of units must be reserved for households earning no more than 60% of AMI.

Most projects elect the 40/60 test, which is the more common threshold renters encounter. The maximum gross rent—including utilities—is capped at 30% of the applicable AMI percentage divided by 12, per the HUD Income Limits documentation.

LIHTC properties differ structurally from Section 8 Housing Choice Vouchers, where a subsidy follows the individual tenant. In LIHTC housing, the subsidy is embedded in the building itself through below-market rents. A unit in a LIHTC building carries a fixed maximum rent regardless of the individual tenant's income, except in deeper subsidy projects layering project-based vouchers.

How it works

The sequence from tax credit allocation to a renter signing a lease involves four discrete stages:

1. Credit allocation. A developer applies to the state HFA for an allocation of 9% credits (competitive, for new construction) or 4% credits (noncompetitive, paired with tax-exempt bonds). The 9% credit generates a subsidy equal to roughly 70% of qualified construction costs; the 4% credit covers roughly 30% (IRS Form 8586 Instructions).

2. Compliance commitment. The developer files a Land Use Restriction Agreement (LURA) or Extended Use Agreement (EUA) in the public record, binding the property to affordability restrictions for a minimum of 30 years under 26 U.S.C. § 42(h)(6). The initial 15-year compliance period is followed by a 15-year extended use period.

3. Tenant income certification. Before move-in and annually thereafter, tenants complete an income certification. The property management team verifies income from all sources against HUD's published AMI limits. If a tenant's income rises above 140% of the qualifying limit after move-in (the "over-income" rule), the next available comparable unit in the building must be rented to an income-qualifying household, but the over-income tenant does not face mandatory displacement under the basic statutory framework.

4. Rent calculation. Maximum allowable rent is tied to the AMI percentage of the unit designation, not the individual tenant's actual income. A unit designated at 60% AMI will charge a fixed maximum rent calculated from HUD's published limits for that metropolitan statistical area (MSA) or county. Utility allowances, published by the local housing authority or HUD, are subtracted from the gross rent cap to determine the maximum tenant-paid rent.

Renters with questions about affordable rental housing programs more broadly—including how LIHTC interacts with other subsidies—can consult their state HFA's renter-facing resources.

Common scenarios

Scenario 1: Applying for a LIHTC unit. The rental application process at a LIHTC property requires income documentation beyond a standard apartment application. Applicants typically submit tax returns, pay stubs covering the prior 90 days, asset statements, and third-party verifications of income. The tenant screening laws applicable to the jurisdiction still apply; a LIHTC designation does not exempt a property from federal fair housing act protections or state anti-discrimination rules.

Scenario 2: Annual recertification. Each year, residents must resubmit income documentation. Failure to complete recertification can trigger a lease violation. Landlords at LIHTC properties generally cannot waive this requirement because it is a federal compliance obligation, not a discretionary building policy.

Scenario 3: Income exceeds the threshold after move-in. Under the over-income rule in 26 U.S.C. § 42(g)(2)(D), the tenant is not automatically evicted. However, rent may increase if the unit's designation shifts, and the property owner is obligated to rent the next available unit to a qualifying household. Some state HFAs apply stricter rules; tenants should check their state's QAP or contact their local housing authority resources.

Scenario 4: Building sale or foreclosure. The EUA recorded in the public record survives a property sale and, in most cases, a foreclosure, protecting the rent structure for the remaining compliance term. The foreclosure renter protections framework under the Protecting Tenants at Foreclosure Act (PTFA) also applies independently.

Decision boundaries

LIHTC status does not override all standard renter protections, but it does add a distinct regulatory layer. The following contrasts clarify where LIHTC-specific rules apply versus where general landlord-tenant law governs:

When a property exits the LIHTC program: At the end of the extended use period (typically year 30), the property owner may request removal from affordability restrictions. Existing tenants in the building at that time have statutory protections under 26 U.S.C. § 42(h)(6)(E), which prohibit eviction of qualified low-income tenants solely to redevelop the property for a three-year window after the extended use period ends. State laws may extend this protection further.

Renters experiencing management practices that appear to violate compliance obligations can file complaints with the state HFA or pursue the HUD complaint process. The renter advocacy organizations network maintains contacts for state-level LIHTC compliance monitoring offices in most jurisdictions.

References

• IRS — Low-Income Housing Tax Credit (LIHTC)
• 26 U.S.C. § 42 — Low-Income Housing Credit (Cornell LII)
• HUD — Income Limits Documentation System
• IRS Form 8586 Instructions — Low-Income Housing Credit
• HUD — Affordable Housing: Housing Tax Credits
• National Council of State Housing Agencies (NCSHA) — LIHTC Program Overview
• Urban Institute — National LIHTC Database