Low-Income Housing Tax Credit Program


The federal Low-Income Housing Tax Credit (LIHTC), enacted in 1986, provides tax benefits for investing in the production of low-income rental units. Since 2012 (when the federal government stopped funding Section 202 new construction), LIHTC has accounted for 90 percent of all affordable rental units produced nationwide. LIHTC provides housing for many households of low income (earning no more than 60 percent of the area median income). Older adults and people with disabilities are among those households that have benefited from this program.

Projects that provide services are eligible for LIHTC, but payment for those mandatory services must be included in gross rent. As with other forms of subsidized rental housing, a landlord can charge residents no more than 30 percent of their monthly income. With program eligibility limited to those with incomes no more than 60 percent of the area median, rents would easily be pushed beyond the allowable ceiling by including the cost of services.

Tax credits may be used only for residential rental properties. The Internal Revenue Service (IRS) ruled in 1998 that assisted living residences may be treated as residential rental property under certain conditions. In order to qualify, these residences cannot provide continual or frequent nursing services to residents. But the ruling did not consider whether nursing services were optional or required. The IRS also did not establish a threshold for “frequent,” and as a result some states have been more flexible than others in interpreting the federal guidelines.

Increasing usefulness of the LIHTC—housing providers have recommended several ways to make the credit more useful in developing housing for older adults. These include:

  • adjusting the credit calculation to make projects or units for single-person households more feasible by allowing individual determinations of qualifying income and rent payments for shared-living arrangements,
  • allowing greater flexibility in the definition of “residential rental property” so that projects with supportive services may more readily qualify for credits, and
  • exempting assisted living residences from the 30-percent-of-income rent cap.

Low-Income Housing Tax Credit Program: Policy

Low-Income Housing Tax Credit (LIHTC) qualified allocation plan priorities

In this policy: LocalState

Policymakers should encourage or award higher points for affordable housing proposals seeking LIHTC allocation that include rental housing for older adults located in places with transit access, universal design features (including visitability and inclusive design), energy-efficient designs, and access to other amenities.

States should create incentives in their allocation plans for LIHTC properties that encourage creation of affordable housing in neighborhoods that meet the needs of older adults, including locations near transit, services, or amenities, and the inclusion of universal design features (including visitability and inclusive design).

Allocations and modifications to LIHTC

In this policy: Federal

Congress should increase the annual allocation to meet the need for affordable rental housing. The allocation should be sufficiently increased to create a net growth in affordable housing units from LIHTC and preservation efforts.

Congress should modify the LIHTC to enable greater flexibility in the development of housing projects for older adults.

Congress should change the definition of the income rent cap under the LIHTC program for service-enhanced housing (such as assisted living): It should either raise the 30-percent-of-income rent cap, which is inappropriate for housing models that include basic services in the monthly rent, or if should modify the definition of rent so that it does not include the cost of basic services.