Section 42

Low-Income Housing Tax Credit (LIHTC)

Credits for investment in qualified low-income housing developments that provide affordable rental housing.

Overview

Section 42 provides the Low-Income Housing Tax Credit (LIHTC), the most significant federal incentive for affordable housing development. The credit encourages private investment in affordable rental housing by providing tax credits to developers who commit to maintaining rent restrictions and income eligibility requirements for a specified period. Credits are allocated by state housing agencies.

Credit Structure

Base Rate
~9% annually

9% Credit

For new construction and substantial rehabilitation without federal subsidies (4% monthly credit)

Enhanced Rate
5x Multiplier

With Prevailing Wage & Apprenticeship

~4% annually

4% Credit

For acquisition of existing buildings and projects with tax-exempt bond financing

Bonus Multipliers

Difficult Development Areas

+130%

Projects in HUD-designated difficult development areas or qualified census tracts may receive a 30% basis boost.

State Allocation

+Limited

Credits are allocated through a competitive process by state housing finance agencies.

Eligibility & Requirements

  • 1
    Property must be residential rental property
  • 2
    At least 20% of units must be rent-restricted for households at 50% AMI, or 40% at 60% AMI
  • 3
    15-year compliance period plus extended use period
  • 4
    State housing agency allocation required
  • 5
    Must meet habitability and other HUD standards

Direct Pay Election

LIHTC credits are not eligible for direct pay but may be syndicated through tax credit equity investments.

Learn More About Direct Pay
Effective Period:Ongoing (permanent program)

Related Credits

Section 47Section 48

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