Low-Income Housing Tax Credit (LIHTC) Overview

To see Novogradac's library of LIHTC webinar recordings and on-demand courses go to training.novoc....
A brief overview of how the low-income housing tax credit (LIHTC) provides quality, affordable rental housing for communities and tax relief for its investors.
Do you have questions about the topics presented in this video? Submit this form (www.novoco.com...) and Michael Novogradac, CPA, may answer your question on his weekly Novogradac Tax Credit Tuesday podcast, available from www.novoco.com... or iTunes.

[@chucktownnative]

Even with this video being over a decade old, it is still one of the best videos on how LIHTC works.

[@SushiWithDan]

finally someone makes a well explained video of pints. thank you

[@rayreyes8497]

I am new in the public housing industry. This is an excellent video on this topic.

[@carlosferdinand9047]

Once I knew all of that, I’d start buying houses - old houses in appreciating markets to fix up and sell, nicer houses in stable markets to rent out to great tenants. I would also tell myself to avoid condos, townhouses, and homes in strict HOA neighborhoods or neighborhoods that have high association fees. I want to be in control of my expenses. Excellent vlog

[@NunYa953]

And I'll swoop in and buy the loans from the bank when you lose your ass. 😂

[@InstTaxSolutionsLLC]

This video explains how the LIHTC helps with communities and their tax reliefs.

[@intercessionradio9297]

This video is GOLD!!!!!

[@misterscaz6011]

Thanks for a very concise, understandable explanation of this.

[@loudanzico7994]

Thanks for an understandable presentation of what is, a complex process. The graphics contributed greatly to understanding. However, I have a question. I believe the video indicated that the tax credits must slightly exceed the amount invested to make the project palatable to the investor, which is reasonable. However, does it not also mean that the IRS will have received less than it otherwise would have? And if that is correct, why does not IRS simply collect the taxes due, avoiding all of the bureaucracy associated with the LIHTC process (and its cost to the taxpayers) and simply give the money to HUD to distribute in the form of grants to otherwise qualified developers? What am I missing?

[@NovogradacCPAs]

TWO KEYS: 1) The tax benefits to the tax payers are delivered over time (not all up front), which defers the cost to the federal government, and 2) tax credit recapture for noncompliance. The potential credit recapture penalty for violating the program rules during the 15-year credit compliance period are enormous. In addition to inspections from the state tax credit allocating agency, investors (rightly worried about securing their credits) insist on oversight. Not giving the benefits up front and the continuing oversight enhances the quality of the properties. See the following video from Rep. Tiberi on the quality of LIHTC housing: kzbin.info/www/bejne/aamwq6iErtiEh8k

[@jacobhernandez4347]

woow mind is blown .. thank you

[@shanebogle9448]

Hey, how much do big companies usually pay for these tax credits? Dollar for dollar? 50%?

[@NovogradacCPAs]

Thirty years ago, when the credit was new and only a temporary/expiring part of the internal revenue code, investors would pay as little as 50 cents on the dollar to claim credits. That was quite the return on investment! As the market for LIHTCs matured (and the credit became a non-temporary part of the IRC), tax credit "pricing" became more stabilized. Generally, the range is between about $0.80 and $1.10 for each dollar in credits eligible to be claimed. However, "price per credit" is somewhat of an oversimplification, as the amount investors are willing to contribute in equity takes into account more than just the credits themselves. Three items to consider are taxable losses claimed, residual cash distributions, and the ability of banks to satisfy CRA obligations via investment in LIHTC partnerships.

[@zekesteven6356]

Excellent!

[@shelleygold4923]

Okay now this is really good

[@chiefa2001]

If the tax credit is equal to what the company paid to build the homes what’s the benefit? To me it seems like 6 in one hand, half a dozen in the other.

[@NovogradacCPAs]

Chief Ali, thank you for your question. The amount of tax credits claimed by the investor limited partner company often exceeds the amount of equity contributed by them. In addition to the tax credits, however, the investor limited partner company will also be entitled to tax losses as well as residual cash flow. And several investors have the added incentive to invest in LIHTC property to satisfy Community Investment Act (CRA) requirements. Because of these other benefits, the amount of equity contributed will not only equal but will commonly exceed the amount of tax credits claimed.

[@clique1111]

Do all Subsized (Multi-Family -LIHTC) properties have to follow federal law for 4350.3, specifically those that are financed through a state financial agency?

[@jessebusma5339]

Who gets to collect the rent?

[@skyeparker5822]

Do these investors typically end up receiving equity in the housing project as well?

[@NovogradacCPAs]

Their ownership interest in the the partnership provides them ownership in the project. However, when investors look to exit the partnership around Year 12 (after they've claimed their credits), they leave the buildings and other assets with the developer.

[@jeremy5159]

Hi i just have one quick question if you can answer me that'd be great. So how exactly does the developers get the money for construction if the 450K credits cannot be claimed until the buildings are built and the form 8609 is issued? Would the investors put the money in first? but then they wouldn't be guaranteed to receive such credits should the compliance falls apart. If that's not true then, does it mean the developments must had at least a $450k cash or capital before they can begin construction?

[@jeremy5159]

Jeremy Chung I also want to say thank you for a very clear and approachable presentation. It was very helpful.

[@jeremy5159]

***** understood! thank you very much

[@ftm21stCentury]

Can a small developer apply for two affordable units project? Is the application process simpler for smaller projects?

[@NovogradacCPAs]

Generally, the application process is no more simple for a smaller project than for a larger project. A project could have as few as two (or even one) affordable units as long as those two units represent no less than 50% of the total units in the project (to meet the 20-50 minimum set-aside).

[@liabas7353]

I'm on section 8 and CTAC 42 INCOME TAX CREDIT (LIHTC) ADDENDUM I have pegion on the stair way dropping on stairs, I informed landlord alot of times never get clean birds still flying back and forth. Who can I call for help .

[@amruthalovesmusic]

How is the TAX Credit Percentage is determined as 9% in this case?

[@NovogradacCPAs]

For buildings not financed using private activity tax-exempt bonds, there is a floor of 9% for the credit percentage (and has been since 2008). If the monthly rate published by Treasury is less than 9% (which it has been for years), the rate will be 9%.

[@patrickdamour7016]

Does the developer keep the rents that is being paid by the tenants? If so, would the tenant be able to pay with section 8 vouchers?

[@NovogradacCPAs]

The developer/owner DOES get to keep the rents being paid by the tenants. Section 8 vouchers ARE allowed with the low-income housing tax credit incentive.

[@sauce816]

​@@NovogradacCPAs-- This helps Slum Lords. This is why I'm reporting my apartment management for claiming and keeping my Section 8 voucher, and been paying full rent. Scammers.

[@NovogradacCPAs]

@@sauce816 Among the requirements for LIHTC property owners to keep the tax credits they're claiming over a 15-year compliance period is maintaining the property's physical condition. New LIHTC properties are supposed to be indistinguishable in quality from market-rate properties in their area. The rent a Section 8 voucher holder pays is based on their adjusted household income. The voucher/subsidy pays the difference between that and a higher payment standard for a unit that size in the area.

[@fldonnab]

I live in a LIHTC apartment. What factors determine rent amount charged for identical size apts? I am not Section 8 & am charged $545 for a three bedroom apt, yet other s in a three BR apt only pay $488, & Craig's list ads list $488 for a 3 BR apt, yet management refuses to lower my rent to match what others pay. I have no extra amenities. Is this legal? Where can I find info on this? The virginia housing authority referred me back to my landlord!!

[@ngalvez65]

queenlila I want to know the same thing.....i can't seem to find a answer to this question. I pay more than others around me.

[@Breezedaddyfresh]

All units are income restricted at various levels. A certain percentage of units and unit types are designated for tenants with income that fall within the deemed Area Median Income (AMI). For example, if you make 40% or less of what the median income is in your metro area, you live in a 3 Bedroom 40% unit. Your neighbors in the same unit type may have a different unit designation - perhaps 3 Bedroom 30%, even though the units are essentially the same. Your designation will not change unless you go over income or apply for a lower percentage restricted unit.

[@lcblas2010]

Are landlords able to ask you to move out of your apartment if your family over income?

[@NovogradacCPAs]

The LIHTC incentive does not require/allow landlords to evict households who are initially income qualified if their income subsequently increases. However, if the household failed to report income during their initial income certification prior to move-in, the landlord will have grounds to evict them.

[@lcblas2010]

God bless your heart . Thanks for giving me some peace of mind I recently got a notice on my door from my landlord indicating that my property that I have been living for over 20 years is going to become LIHTC (an other housing program) . And since I pay market rent right now that I will be asked to move because I’m no longer qualified under the new program that they’re in I’m thinking that the people that are sending out these notices are not fully educated as you are

[@lcblas2010]

@Novgradac my property is currently consider subsidized which I pay market right now

[@aliciabarker6726]

Hi, this topic is still relevant up today. Thanks for explaining the LITHC program thoroughly. My income is over the 140 percent limit, and the lease manager keeps calling to offer me market rate apartments. They usually add my state income, which is always higher than my federal gross income, along with my 457 plan interest that goes into the retirement system. I am still working and do not have access to that money unless I take out a loan and pay it back. The thing is, those income looks good on paper, but it is not my actual income. I can't take money out of my 457 unless it's a loan and pay back. I don't understand why they added this to my income. Anyway, they always call and tell me that they are getting ready to do eviction, and I am the only one who is keeping them from renting their market rate apartment. I wish I had the income to go and buy my own place. Sometimes, I feel like I am burdened to them. At least, that's how they make me feel. Now, I know a little more about the policy, and I feel much at ease.

[@Ravi-ut7kk]

What about the compliance period?

[@SlideRemarks]

Ravi Patel, the compliance period is the 15-year period over which the credits are earned beginning on the first day of the taxable year in which the credits will be claimed.

[@Ravi-ut7kk]

@@SlideRemarks Can it extend past 15 years?

[@NovogradacCPAs]

@@Ravi-ut7kk The tax credit compliance period is only ever 15 years in length. This is the period over which credits can be disallowed or recaptured. IRC Section 42 requires an extended use period that extends at a minimum 15 years past the end of the compliance period. Although credits cannot be recaptured after the 15-year compliance period, any violations of affordability during the extended use period are subject to the provisions of the regulatory or extended use agreement made between the partnership and the state allocating agency.

[@Ravi-ut7kk]

@@NovogradacCPAs Thanks I'm looking at a deal that also has a 501c3 tax exemption and want to see if it is allowable under the fannie or freddie small balance program

[@goldy496]

is that Wayne talking?

[@NovogradacCPAs]

Yes.

[@kelvinpittman3963]

Can LIHTC be used on existing buildings?

[@NovogradacCPAs]

Yes. Those types of properties are referred to as acquisition/rehabilitation (or "acq/rehab") properties. The key is that a developer can't merely acquire an existing building for tax credits--it must conduct a minimum amount of rehab on the building as well.

[@kelvinpittman3963]

Thank you for the reply. How can I learn more about the acq/rehab program?

[@NovogradacCPAs]

Each of our affordable housing conferences (four per year) will generally feature either a panel, pre-conference workshop, or entire track dedicated to acq/rehab issues: www.novoco.com/events. We also host at least one acq/rehab webinar per year: www.novoco.com/training

[@artemcool3698]

unreal......

[@fldonnab]

I moved here over 8 years ago and paid nearly $100 MORE than other non-welfare non Sec 8 tenants for same size 3 br apt, yet management keeps refusing to lower my rent to what others pay, and mgt advertises to the world via internet that 3 br rents are $488. This complex was built & tennants started moving in in 2003.I do not want to move. What legal basis allows them to overcharge me when most tenants living here for many years and new tenants only pay $488? These are not welfare/sec 8 tenants

[@NovogradacCPAs]

Brandon's comment below could provide your answer. The property must comply with federal minimum set-asides for all units (say rent levels based on published income limits of 60% of area median income). But the owners may have received greater consideration on their application to the state by setting aside multiple units for households that make less than the federal limits. That is one reason why you can have two units in the same building with different rent limits even though both are set aside for income qualified households.