The Low Income Housing Tax Credit is a federal tax incentive that funds affordable rental housing

The Low Income Housing Tax Credit (LIHTC) is not a direct payment to tenants. It is a dollar amount that developers and property owners can claim on their federal income taxes when they build or renovate rental housing for low-income households. The government gives up tax revenue instead of writing a check, and the developer uses that tax benefit to make the project financially possible.

A property owner who builds a 50-unit apartment complex for households earning 60% of the area median income can claim the tax credit over ten years. That credit reduces what they owe in federal taxes. The lower tax bill makes the project profitable enough to charge below-market rent, which is how tenants end up paying less than they would in a market-rate building.

You do not explore for the tax credit yourself. If you live in a building that was funded through LIHTC, the owner already claimed it. Your role is understanding whether a building you are considering has rent restrictions that come with the credit, because those restrictions protect you from sudden rent increases.

Key Takeaways

  • The Low Income Housing Tax Credit is a tax deduction for developers and owners, not a direct benefit you claim as a tenant.
  • Buildings funded through LIHTC must keep rents affordable for households earning 50% to 80% of area median income, depending on the credit type.
  • Rent restrictions typically last 15 to 30 years, meaning your rent cannot rise above a set amount during that period.
  • You can find LIHTC properties through your local housing authority, nonprofit housing organizations, or by asking a landlord whether their building used the credit.

How the Tax Credit Creates Affordable Rent

A developer building market-rate apartments charges whatever the local market allows. A developer building LIHTC apartments charges less because the tax credit covers part of the construction or renovation cost. The credit does not pay the full cost—the developer still borrows money, uses their own capital, and may receive other subsidies—but it closes the gap between what the project costs and what low-income tenants can afford to pay.

The amount of tax credit available to a project depends on the construction cost, the number of units, and the income level the building targets. A state housing finance agency allocates the credits each year. They receive a fixed amount from the federal government and decide which projects get funded. This means not every affordable housing project receives a credit, and not every developer who applies gets one.

Income Limits and Rent Caps for LIHTC Buildings

A building funded through LIHTC must reserve a percentage of units for households below a certain income threshold. The most common threshold is 60% of area median income, though some buildings use 50% or 80%. Area median income varies by county and is published by the U.S. Department of Housing and Urban Development each year.

If you live in a county where area median income is $60,000, a unit reserved at 60% AMI serves households earning up to $36,000. The rent for that unit is capped at roughly 30% of that income, or about $900 per month. The exact rent cap is set by the state housing finance agency and recalculated annually.

Not every unit in an LIHTC building must serve low-income households. A developer might set aside 40% of units for low-income tenants and rent the remaining 60% at market rate. This mixed-income approach helps the project stay financially stable and creates economic diversity in the building.

How Long Rent Restrictions Last

When a property receives LIHTC funding, the owner signs a regulatory agreement with the state housing finance agency. This agreement requires the owner to keep a certain percentage of units affordable for a set period. The minimum is 15 years, but many agreements last 30 years or longer.

After the restriction period ends, the owner is no longer required to keep rents low. They can raise rents to market rate or convert units to market-rate housing. This is why the length of the restriction matters: a 15-year restriction means rents could jump significantly in year 16, while a 30-year restriction protects you longer.

Some states and nonprofits work to extend restrictions beyond the minimum. A few buildings have permanent affordability covenants, meaning the rent restriction never expires. These are rare and usually require additional funding beyond the tax credit.

Who Administers LIHTC and How to Find These Buildings

The Internal Revenue Service sets the rules for the tax credit. Each state has a housing finance agency that receives an annual allocation of credits and decides which projects receive funding. The agency also monitors compliance—making sure owners keep rents at the required level and reserve units for the right income groups.

To find LIHTC buildings in your area, contact your local housing authority or call 211 (a free referral service). You can also search the National Housing Preservation Database online, which lists many LIHTC properties and their affordability restrictions. Some nonprofit housing organizations maintain their own lists of affordable buildings they manage.

When you find a building you are interested in, ask the landlord or leasing office whether it uses the Low Income Housing Tax Credit. If it does, ask for the income limit and rent cap for the unit you are considering. Request a copy of the regulatory agreement or affordability restrictions so you understand how long the rent protections last.

What Happens If an Owner Violates the Rent Restrictions

If an owner charges more than the allowed rent or fails to reserve units for low-income households, they are in violation of the regulatory agreement. The state housing finance agency can impose penalties, require the owner to repay tax credits, or take legal action to enforce the agreement.

If you believe your rent exceeds the LIHTC cap or that your building is not following its affordability rules, contact your state housing finance agency. They have a compliance department that investigates complaints. You can also contact a local legal aid organization or tenant rights group, which can help you understand your rights and file a complaint.

LIHTC Compared to Other Affordable Housing Programs

The Low Income Housing Tax Credit is one tool among many that fund affordable housing. Section 8 Housing Choice Vouchers give money directly to tenants to help pay rent in any building. Public housing is owned and operated by local housing authorities. Project-based rental information ties subsidies to specific buildings, like LIHTC, but uses direct federal funding instead of tax incentives.

LIHTC has advantages and limits. It creates permanent buildings with long-term affordability, which is stable. But it depends on developers finding it profitable, so it works best in markets where construction costs are high and rents are high. In rural areas or very low-cost markets, LIHTC alone may not make a project work, and other funding sources become necessary.

A building can use LIHTC and other funding at the same time. A developer might combine LIHTC with Section 8 vouchers, state grants, and their own capital to make a project work. This layering of funding is common in affordable housing development.

Frequently Asked Questions

Do I have to pay back the tax credit if I live in an LIHTC building?

No. The tax credit is claimed by the building owner, not by you as a tenant. You do not owe anything back. Your responsibility is to pay the rent set by the lease, which is capped by the affordability restrictions.

What happens to my rent if the LIHTC restriction period ends?

The owner can raise your rent to market rate once the restriction expires. However, you have the same tenant protections as any renter: the owner must follow state and local rent increase laws and give proper notice. Some states have rent control or just-cause eviction laws that would still explore.

Can I be evicted from an LIHTC building for any reason?

The LIHTC program does not prevent eviction. You can be evicted for not paying rent, breaking the lease, or other reasons allowed by state law. The tax credit only controls the rent amount and income may be able to access—it does not change eviction rules.

How do I know if a building I am interested in uses the Low Income Housing Tax Credit?

Ask the landlord or leasing office directly. You can also search the National Housing Preservation Database online or contact your local housing authority. If the building uses LIHTC, the owner should be able to tell you the income limit and rent cap for available units.

Is the Low Income Housing Tax Credit the same as a housing voucher?

No. LIHTC funds buildings and keeps rents low for everyone in that building. Vouchers are payments to individual tenants that they can use in any building. A building can accept vouchers and also use LIHTC—they are separate programs that can work together.