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Thoughts and Opinions on Real Estate, Crowdfunding and Investment

What are LIHTCs, and why are they important to real estate development and investment?

pexels-photo-259781.jpgWith stagnating wages and rapidly growing cities, an abundant supply of affordable housing is more important than ever. The Low Income Housing Tax Credit Program, often abbreviated as “LIHTC” (pronounced lie-teck) offers tax incentives to owners of rental housing reserved for low-income families, defined as those earning less than 60% of the Area Median Income (AMI).

The LIHTC program was created by the Tax Reform Act of 1986 and gives designated state and local agencies the authority to issue tax credits for the acquisition, rehabilitation, and construction of rental housing reserved for low-income families. Approximately 90% of all affordable rental housing created in recent years benefitted from LIHTCs.

LIHTCs often make affordable housing projects economically feasible. Since part of the construction or rehabilitation costs are subsidized by the credit, the owner can afford to rent the units at an reduced rate.

LIHTC project may be very attractive to investors because of the demand in many areas for quality affordable housing. Equity investors in LIHTC projects will not likely need to be deeply involved in the details of the program requirements.

Developers of LIHTC projects often utilize other tax credits and incentives, including Historic Tax Credits and New Markets Tax Credits, which boost returns and make their projects especially attractive to investors.

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