What is LIHTC? A Beginner’s Guide to Low-Income Housing Tax Credits

At a glance:

• The main takeaway: The Low-Income Housing Tax Credit (LIHTC) program is the federal government’s most effective tool for incentivizing the creation and preservation of affordable rental housing.
• Impact on developers: LIHTC properties must meet strict affordability and occupancy standards. Property managers and developers must also navigate complex compliance requirements to avoid credit recapture and ensure long-term program success.
• Next steps: Aprio’s Affordable Housing team brings deep experience across 450+ LIHTC projects to help you better manage certification, compliance, audits, and exit strategies.

Schedule a consultation to learn more.

As an affordable housing developer, it’s important to leverage all the programs the federal government has to offer to boost your bottom line and reduce tax liability. The most lucrative benefit at your disposal? The Low-Income Housing Tax Credit (LIHTC) program.

LIHTC is the federal government’s most powerful tool for encouraging the development and preservation of affordable rental housing. Since its introduction under the Tax Reform Act of 1986, LIHTC has helped finance over 3 million housing units across the United States.

But what is LIHTC, really? And how does it work in practice for developers, investors, and property managers? This beginner’s guide and FAQ will help you understand the essentials, from certification and compliance to property requirements and year 15 transitions.

What is the LIHTC program?

Authorized under Section 42 of the Internal Revenue Code, LIHTC allocates tax credits to developers through state housing finance agencies. From there, developers can sell these credits to investors to raise equity for housing projects, reducing the need for debt and enabling lower rents for tenants. There are two types of rates for LIHTC programs:

• 9% LIHTC: Competitive and typically used for new construction.
• 4% LIHTC: Non-competitive and paired with tax-exempt bond financing.

You may be asking yourself: how does LIHTC housing differ from typical affordable housing? LIHTC housing is the term the government uses to classify rental properties developed or rehabilitated using LIHTC funding. Similarly, a LIHTC property is any residential rental development that has received LIHTC allocations. These properties are subject to long-term affordability restrictions and must comply with both federal and state-level program rules. They typically serve households earning 60% or less of the area median income (AMI).

How does LIHTC affect property management?

Property managers that own LIHTC properties must have a deep understanding of the regulatory compliance requirements that govern the program. In other words, managers must make sure that their tenant income thresholds, rent levels, and unit occupancy numbers remain within program guidelines. LIHTC property managers also need to complete annual income recertifications and maintain detailed recordkeeping.

What is the LIHTC certification process?

LIHTC certification is the process of verifying that a tenant qualifies for a LIHTC unit. To complete the certification, you must collect income documentation, calculate household income, and make sure your units comply with LIHTC rent limits.

To do this properly, your property managers and compliance team must have ample LIHTC experience. This means they must understand the unique nuances of LIHTC compliance, reporting, and tenant eligibility. What’s more, you and your team must also know how to navigate Qualified Allocation Plans (QAPs), prepare for audits, and maintain compliance through the 15-year credit period and beyond. This is why enlisting the help of an experienced, industry-specific advisory team can be hugely beneficial.

LIHTC compliance and skill requirements

LIHTC property requirements include:

• Rent and income limits based on AMI
• Minimum set-aside rules (e.g., 40% of units at 60% AMI)
• Extended use periods (often 30 years or more)
• Annual reporting and physical inspections

Failure to comply with these requirements can result in credit recapture, which is why you must make regulatory compliance a top priority in your organization.

Like regulatory compliance knowledge and experience,professionals working with LIHTC properties need to have a blend of technical and soft skills, including:

• Knowledge of Section 42 regulations
• Proficiency in compliance software
• Attention to detail for documentation
• Communication skills for tenant interactions
• Familiarity with year 15 compliance and exit strategies

How does the LIHTC year-15 compliance process work?

The LIHTC tax credit program is not a direct subsidy to tenants but rather a financing mechanism for developers. Investors receive a dollar-for-dollar reduction in federal tax liability over a 10-year period, while the property must remain in compliance for at least 15 years.

At the end of the 15-year compliance period, LIHTC properties enter a critical phase known as year 15. During year 15, you may choose to:

• Continue operating under extended use restrictions
• Restructure ownership
• Exit the program through a qualified contract

At Aprio, we help our clients navigate this transition and make sure they meet appropriate compliance requirements while maximizing long-term property value.

The bottom line

As a developer, LIHTC offers you a viable path to finance affordable housing. For investors, the program provides tax benefits and community impact, and for property managers it demands both precision and accountability when managing units.

And most importantly, LIHTC means access to safe, affordable homes for your tenants.

If you’re exploring LIHTC opportunities or need help with maintaining regulatory compliance, Aprio’s Affordable Housing team is here to guide you. With deep experience across 450+ LIHTC projects, we bring clarity and confidence to every phase of the process.

Schedule a consultation with our team today.