Greater Greater Washington, March 28, 2024, How Federal Stimulus Accidentally Bottlenecked Affordable Housing In DC
Low-Income Housing Tax Credits are divided into two categories: 9% LIHTC and 4% LIHTC. 9% LIHTC provide an annual tax credit worth 9% of eligible costs for 10 years (so a total tax credit worth 90% of eligible costs). 4% LIHTC provide an annual tax credit worth 4% of eligible costs for 10 years (so a total tax credit worth 40% of eligible costs). Because not all project costs are tax credit-eligible costs, most notably the cost to purchase the land, in practice 9% LIHTC cover less than 90% of total project costs (closer to 70%) and 4% LIHTC cover less than 40% of total project costs (closer to 30%).
The 9% LIHTC program is therefore designed to cover most of a project’s costs and is generally reserved for smaller projects that generate little revenue because they target very low-income households or other special-needs individuals. These credits offer a large amount of federal subsidy on a per-unit basis, which is necessary because the projects can support very little debt due to the lack of operating income. Each state receives a fixed allocation of credits from the federal government to award to projects on a competitive basis.
