Introduced as part of the Tax Reform Act of 1986, the Low-Income housing Tax Credit (LIHTC) provides private investors a federal income tax credit as an incentive to make equity investments in affordable rental housing.
The federal housing tax credits are awarded to developers through a competitive application process of qualified projects administered by state housing finance authorities. Developers can either use the credits directly or sell them to investors which helps raise capital for reconstruction while also reducing financing costs, hopefully leading properties expanding the supply of affordable rental housing. 1
Usually affordable units but with LIHTC dollars are required to stay that way for 30 years from construction. Due to the nature of the tax credits, it takes several different partners to complete the process. Tax credits were set to be used in low-income neighborhoods as an effort to increase development in neighborhoods that otherwise lack housing investments. However, this policy can help perpetuate racial segregation and the concentration of poverty. 2
For more information on the complicated structure of the LIHTC, see here.
For the full text of the bill, see here.
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