The housing credit program is a unique public/private partnership. It annually brings around $18-20 billion in private investment capital to the development of affordable rental housing and creates 95,000 jobs.

Low-income housing tax credits were created by the Tax Reform Act of 1986 and are governed by Section 42 of the Internal Revenue Code. Investors take the credits as a dollar-for-dollar reduction of their federal tax liability over a ten-year period.

Every year, the IRS allocates credits to each state based on its population size. State agencies in turn award the credits to developers who want to build affordable housing. Developers apply through a competitive process for projects that must meet federal criteria that include thresholds for the income of the residents and specified rent levels, as well as state criteria that reflect local priorities and conditions.

Once the developers are awarded the credits by a state, they generally sell them directly to an investor or a syndicator, who assembles a group of investors to purchase the credits. The investment dollars go into the affordable housing project as equity that reduces the amount of debt a project has to repay, allowing it to have affordable rents.

While investors use the credits over a ten-year period and have compliance requirements for 15 years, the housing project must remain affordable for a minimum of 30 years.

Over its 35 year history, the housing credit has spurred the development of nearly 3.5 million homes for needy seniors, working families, veterans, the formerly homeless, and people with special needs.

For more information on the housing credit, see these Helpful Links. To learn more about the role of the investor in this unique public/private partnership, check out this FAQ.