What Is the Low Income Housing Tax Credit (LIHTC)?
The Low Income Housing Tax Credit (LIHTC) is a federal program that finances the construction and rehabilitation of affordable rental housing across the United States. It does not provide direct rental assistance to tenants the way the Section 8 Housing Choice Voucher (HCV) program does. Instead, it gives tax credits to private developers and investors who build or renovate housing units that are then rented at reduced rates to income-eligible households.
Understanding how LIHTC works — and how it differs from and intersects with the Section 8 program — helps renters make sense of the broader affordable housing landscape.
How the Tax Credit Mechanism Works
Congress allocates LIHTC credits annually to each state through the IRS. State housing finance agencies (sometimes called HFAs) then distribute those credits to developers through a competitive application process.
Developers who receive credits sell them to private investors — typically banks or corporations — in exchange for upfront equity financing. Those investors receive the tax credits over a 10-year period, which reduces their federal tax liability dollar for dollar.
In return, the developer agrees to:
- Rent a specified percentage of units to households below a set income threshold
- Keep rents at or below a defined affordable level
- Maintain those requirements for a compliance period, typically 15 to 30 years
The result is housing that rents for less than market rate — not because of ongoing government payments, but because the financing structure made construction possible at a lower cost.
Income and Rent Limits in LIHTC Properties
Rent and income limits in LIHTC properties are tied to Area Median Income (AMI) — the same benchmark used in the Section 8 HCV program, though applied differently here.
Common LIHTC income thresholds include:
| Income Limit | What It Means |
|---|---|
| 30% AMI | Household earns no more than 30% of the area median income |
| 50% AMI | Household earns no more than 50% of the area median income |
| 60% AMI | Household earns no more than 60% of the area median income |
| 80% AMI | Some mixed-income projects include units at this threshold |
Rents in LIHTC units are typically capped at 30% of the income limit for the unit's designated tier. These limits vary by location, household size, and the specific tax credit allocation. The exact income and rent limits for a given property depend on where it is located and how the developer structured the project.
LIHTC vs. Section 8: Key Differences 🏠
These are two distinct programs that operate differently, though they can overlap.
| Feature | LIHTC | Section 8 HCV |
|---|---|---|
| Type of assistance | Subsidizes construction/rehab | Subsidizes tenant's rent directly |
| Who receives the benefit | Developers/investors | Eligible tenant households |
| Where you can live | Only in LIHTC-designated properties | Any private-market unit with a participating landlord |
| Administered by | State housing finance agencies | Local Public Housing Authorities (PHAs) |
| Portability | No — tied to the property | Yes — tenant-based vouchers move with the household |
| Rent limit basis | AMI-based caps set per unit | Payment standard set by local PHA |
A household using a Section 8 HCV can, in some cases, apply that voucher toward a unit in an LIHTC property — but only if the landlord accepts vouchers and the unit meets HCV program requirements. Not all LIHTC properties accept vouchers.
How Households Access LIHTC Housing
Tenants do not apply for LIHTC credits directly. Instead, they apply to rent a unit in a property that was financed using those credits. The application process, waitlist procedures, and eligibility screening are managed by each property's owner or management company, not a PHA.
Each LIHTC property may have its own:
- Waitlist length and opening schedule
- Income verification process
- Screening criteria (credit history, rental history, criminal background)
- Unit availability by bedroom size
Eligibility rules at LIHTC properties can vary significantly from one building to the next, even within the same city. Some properties serve only households at or below 50% AMI; others include a mix of 60% AMI units and market-rate units in the same building.
The Compliance Period and Long-Term Affordability
When a developer accepts LIHTC credits, they commit to an initial compliance period of 15 years and an extended use period that often runs to 30 years or more, depending on state requirements and the terms of the tax credit agreement.
After the compliance period ends, the property owner may have the option to convert units to market-rate rentals, though many states impose longer affordability requirements. This is one reason LIHTC housing stock can shift over time — units that were affordable a decade ago may no longer carry those restrictions today.
Why LIHTC Matters for Section 8 Participants 📋
For households with Section 8 vouchers, LIHTC properties represent one category of rental housing to consider. When a property accepts vouchers, the subsidy structure of both programs applies simultaneously — meaning the PHA's payment standard, inspection requirements, and rent reasonableness rules still govern the voucher side of the arrangement.
For households without vouchers who are searching for affordable housing, LIHTC properties may offer below-market rents without requiring a voucher at all — though income eligibility must still be demonstrated and units may have waitlists of their own.
The factors that determine whether a specific LIHTC unit is accessible — income limits, unit availability, property-level screening criteria, and whether vouchers are accepted — vary by property, location, and the structure of the original tax credit agreement. Local housing authorities and state housing finance agencies are the authoritative sources for what's available in a given area.
