The Low Income Housing Tax Credit (LIHTC) Program, based on Internal Revenue Code Sec. 42, was enacted by Congress in 1986 to encourage new construction and rehabilitation of existing rental housing for low-income households and to increase the amount of affordable rental housing for households whose income is at or below specified income levels.
The LIHTC is an indirect federal subsidy that finances low-income housing. This allows investors to claim tax credits on their federal income tax returns. The tax credit is calculated as a percentage of costs incurred in developing the affordable housing property, and is claimed annually over a 10-year period. Some investors3 may garner additional tax benefits by making LIHTC investments.