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

The Low-Income Housing Tax Credit program is the primary federal mechanism for financing affordable rental housing in the United States, operating through a tax incentive structure that has produced more than 3 million housing units since its enactment (HUD Office of Policy Development and Research). This page covers the program's definition, how units are allocated and managed, the situations renters commonly encounter when seeking or occupying LIHTC housing, and the boundaries that determine eligibility and compliance. For renters navigating the affordable housing landscape, understanding LIHTC's structure is essential to identifying available units and maintaining tenancy within program requirements. The Renters Providers section of this site catalogs available rental properties, including income-restricted inventory.

Definition and scope

The Low-Income Housing Tax Credit program was established under Section 42 of the Internal Revenue Code as part of the Tax Reform Act of 1986 (26 U.S.C. § 42). The program does not provide direct subsidies to renters. Instead, the Internal Revenue Service (IRS) allocates tax credits to state housing finance agencies, which then award the credits to private developers who agree to rent a specified portion of units to income-qualified households at restricted rents.

Each state receives a per-capita allocation of credits. For 2023, the IRS set the per-capita allocation at $2.75 per resident, with a small-state minimum of $3,185,000 (IRS Revenue Procedure 2022-38). Developers claim the credits over a 10-year period and are required to maintain affordability for a minimum of 30 years, though most state agencies impose a 30-to-55 year compliance period.

Two credit types exist within the program:

• 9% credits: Applied to new construction and substantial rehabilitation not financed with tax-exempt bonds. These credits are competitive and generate larger per-unit equity.
• 4% credits: Applied to acquisition-rehabilitation projects or developments financed with tax-exempt bonds under Section 142 of the Internal Revenue Code. These credits are non-competitive but produce less equity per unit.

The Department of Housing and Urban Development (HUD) maintains the national LIHTC database, which includes property-level data on more than 50,000 projects placed in service through the most recent reporting year (HUD LIHTC Database).

How it works

A LIHTC property operates under a compliance framework enforced at three levels: the IRS, the state housing finance agency, and the property management team. Renters interact primarily with property management, but the underlying rules originate from federal statute and state Qualified Allocation Plans (QAPs).

The income qualification process follows a structured sequence:

1. Income certification: Applicants submit documentation of gross household income. The property manager calculates income against the Area Median Income (AMI) threshold designated for the unit.
2. AMI threshold determination: Units are designated at either 60%, 50%, or 30% of AMI, depending on the set-aside election made at the time of credit allocation. The most common threshold is 60% AMI (HUD Income Limits, FY2023).
3. Rent calculation: Maximum rents are set at 30% of the applicable income limit for the unit size. A 60% AMI unit for a two-bedroom household, for example, carries a maximum rent of 30% of 60% of the two-person AMI for that metropolitan area.
4. Annual recertification: Most LIHTC properties require tenants to recertify income annually. Some properties have adopted the "Available Unit Rule," which allows over-income tenants to remain if the next available unit of the same size is rented to a qualified applicant.
5. Lease execution: LIHTC tenants sign a standard lease and, at some properties, an addendum acknowledging program income requirements. The lease term, renewal rights, and eviction procedures are governed by state landlord-tenant law.

The state housing finance agency — such as the Texas Department of Housing and Community Affairs (TDHCA), the California Tax Credit Allocation Committee (CTCAC), or the New York State Homes and Community Renewal (HCR) — monitors compliance through annual reports and periodic physical inspections.

Common scenarios

Renters encounter LIHTC properties in four primary contexts:

New application: A household applies directly to a LIHTC property. Waitlists are common; properties with Project-Based Section 8 contracts layered on top of LIHTC credits may have waitlists measured in years. The Renters Provider Network Purpose and Scope page describes how rental providers in this network are organized by program type.

Income increase during tenancy: If a household's income rises above 140% of the applicable income limit, the Available Unit Rule is triggered. The property must rent the next available comparable unit to a qualified household, but the existing tenant is not required to vacate.

Property transfer or resale: LIHTC affordability restrictions run with the property, not the ownership entity. A sale or foreclosure does not extinguish the compliance period. Renters retain their lease rights through ownership transitions under the program's extended use agreement.

Mixed-income properties: Developers frequently combine LIHTC units with market-rate units in the same building. Market-rate tenants in these buildings are not subject to income or rent restrictions. LIHTC units are identified by unit number in the Land Use Restriction Agreement (LURA) recorded against the property deed.

Decision boundaries

Several threshold conditions determine whether a household qualifies and whether a unit remains in compliance:

• Income at or below designated AMI: Eligibility requires household income to fall at or below the applicable AMI percentage at initial certification. HUD publishes updated income limits annually by metropolitan statistical area and county.
• Student rule: Full-time student households are generally disqualified under Section 42(i)(3)(D), with exceptions for households including single parents, former foster youth, and recipients of certain assistance programs.
• Unit size and composition: Occupancy standards at LIHTC properties must comply with HUD's Fair Housing occupancy guidelines. Household size alone cannot be used to deny a family a unit of appropriate size.
• Minimum set-aside elections: A property must meet either the 20-50 test (20% of units at 50% AMI or below) or the 40-60 test (40% of units at 60% AMI or below) to qualify for LIHTC at all (26 U.S.C. § 42(g)).

For renters researching the full spectrum of affordable and market-rate housing resources available through this network, the How to Use This Renters Resource page outlines the organization of providers and service categories.