4 Percent Low Income Housing Tax Credits
Please see the LIHTC Program Overview for Eligibility and Low Income Use Restrictions.
4 Percent Fixed Rate
In the past, the actual tax credit rate varied based upon the Applicable Federal Rate (AFR). However, on December 27, 2020, the Consolidated Appropriations Act, 2021 (“H.R. 133”) was signed into law establishing a minimum credit of 4 percent for Low Income Housing Tax Credit (LIHTC) projects. The 4 percent LIHTC will provide approximately 30 percent equity for a new or existing project.
The 4 percent low income tax credit can bring equity into two types of projects:
- In conjunction with Private Activity Bonds, 4 percent low-income tax credit may be used for either new construction or rehabilitation of existing projects.
- In combination with the competitive 9 percent tax credit, the 4 percent low-income tax credit may be used for the acquisition costs of existing buildings when completing rehabilitation.
Private Activity Bonds
Developers that use private activity bond financing receive 4 percent annual tax credits for all costs included in eligible basis for new construction and acquisition/rehabilitation projects for a period of 10 years. Any project that is located in areas designated as Difficult to Develop Areas (DDA) or areas within a Qualified Census Tract (QCT) are eligible for an additional 30 percent in eligible basis (130 percent boost) for new construction or rehabilitation. See the Bond Financing Term Sheet for more information.
Non-Competitive, “As of Right” Tax Credit
The 4 percent tax credit is an “as of right” award when utilized in conjunction with Private Activity Bonds (PAB) and are not considered competitive. The acquisition costs of the existing buildings are excluded from the basis boost of 130 percent.
Combining Competitive 9 Percent Award with 4 Percent Acquisition Credits
Acquisition/Rehabilitation developments that receive LIHTC awards in the 9 percent competitive round, may utilize the 4 percent LIHTC credits for the acquisition cost of existing buildings. The 4 percent acquisition credit is excluded from the QCT/DDA basis boost of 130 percent.
Use of Bonds for Construction
Bonds must be used during construction and must cover at least 50 percent of the total development costs in order to be eligible for 4 percent tax credits.