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The Low Income Housing Tax Credit (LIHTC) program was created by the Tax Reform Act of 1986 as an alternate method of funding housing for low- and moderate-income households, and has been in operation since 1987. Until 2000, each state received a tax credit of $1.25 per person that it can allocate towards funding housing that meets program guidelines (currently, legislation is pending to increase this per capita allocation). This per capital allocation was raised to $1.50 in 2001, to $1.75 in 2002, and adjusted for inflation beginning in 2003. These tax credits are then used to leverage private capital into new construction or acquisition and rehabilitation of affordable housing.
The tax credits are determined by the development costs, and are used by the owner. However, often, because of IRS regulations and program restrictions, the owner of the property will not be able to use all of the tax credits, and therefore, many LIHTC properties are owned by limited partnership groups that are put together by syndicators. In this manner, a variety of companies and private investors participate within the LIHTC program, investing in housing development and receiving credit against their federal tax liability in return.
Tax Credits must be used for new construction, rehabilitation, or acquisition and rehabilitation. Projects must also meet the following requirements:
- 20% or more of the residential units in the project are both rent restricted and occupied by individuals whose income is 50% or less of area median gross income or 40% or more of the residential units in the project are both rent restricted and occupied by individuals whose income is 60% or less of area median gross income.
- When the LIHTC program began in 1987, properties receiving tax credits were required to stay eligible for 15 years. This eligibility time period has since been increased to 30 years.
These are minimums. Because of the way states award credits, it is in the interest of developers to exceed these minimums, as most states look more favorably on projects serving a higher percentage of income-eligible households.
Hawaii's LIHTC Program is administered by the Hawaii Housing Finance and Development Corporation. Visit the HHFDC website for more information on LIHTC and other gap financing resources available.
The U.S. Department of Treasury has designated HCRC as a Community Development Financial Institution (CDFI) and a Community Development Entity (CDE). As a CDE, HCRC is eligible to apply for New Markets Tax Credit Allocations. As such, HCRC has submitted an application for an allocation in the CDFI Fund's 2011 Round.
The New Markets Tax Credit (NMTC) Program was established by Congress in 2000 to spur new or increased investments into operating businesses and real estate projects located in low-income communities. The NMTC Program attracts investment capital to low-income communities by permitting individual and corporate investors to receive a credit against their Federal income tax return in exchange for making equity investments in specialized financial institutions called Community Development Entities (CDEs). The credit totals 39 percent of the original investment amount and is claimed over a period of seven years (five percent for each of the first three years, and six percent for each of the remaining four years).
Since the NMTC Program’s inception, the CDFI Fund, which administers the NMTC Program nation-wide has made 594 awards allocating a total of $29.5 billion in tax credit authority to CDEs through a competitive application process. This $29.5 billion includes $3 billion in Recovery Act Awards and $1 billion of special allocation authority to be used for the recovery and redevelopment of the Gulf Opportunity Zone.
In housing related projects that leverage NMTCs, at least 20% of the development’s revenue stream must be non-residential.