What is the difference between 4% tax credits and 9% tax credits?

The 4% tax credit (30% subsidy) is for the acquisition of existing buildings for rehabilitation and new construction financed by tax-exempt bonds. The 9% tax credit (70% subsidy) is usually for new construction and substantial rehabilitation without federal subsidies.

What is a 9% LIHTC?

There are two types of LIHTCs available to developers. The so-called 9% credit is generally. reserved for new construction and is intended to deliver up to a 70% subsidy. The so-called 4% credit is typically used for rehabilitation projects utilizing at least 50% in federally tax-exempt.

How does 4% LIHTC work?

4 Percent. The LIHTC is designed to subsidize either 30 percent or 70 percent of the low-income unit costs in a project. The 30 percent subsidy, which is known as the so-called automatic 4 percent tax credit, covers new construction that uses additional subsidies or the acquisition cost of existing buildings.

What is the LIHTC 10% test?

What is the 10 percent test? A: If a project is not placed in service by the end of the calendar year in which the LIHTC allocation was received, the project must qualify for a carryover allocation. There are two federal requirements for a valid carryover allocation.

How is tax credit rent calculated?

The tax credit program assumes a 1.5 person bedroom size. To calculate the income of “1.5 people” the owner will average the AMI of a one person household ($68,300) with the AMI of a two person household ($78,000). The average equals $73,150. To calculate the monthly rent, divide this number by 12 which equals $914.37.

Why are investors attracted to the low income housing tax credit program?

Although this delay is not very attractive, many capital investors rely on the low-income housing tax credits as a way to increase their rate of return on the projects and help to overcome the perceived risk of investing in affordable housing.

What is Section 42 of the IRS code?

Section 42(a) provides for a credit for investment in certain low-income housing buildings. The amount of the low-income housing credit for any taxable year in the credit period is an amount equal to the applicable percentage of the qualified basis of each qualified low-income building (as defined in § 42(c)(2)).

What is the 50% test?

The amount of 4% credits is effectively limited through what is called the 50% test. be used for calculation of 4% credits). This means, therefore, that 50.0000001% of the eligible basis is NOT shielded from the competitive allocation process.

How do you qualify for LIHTC?

Qualifying for the Credit

1. At least 20 percent of the project’s units are occupied by tenants with an income of 50 percent or less of area median income adjusted for family size (AMI).
2. At least 40 percent of the units are occupied by tenants with an income of 60 percent or less of AMI.

What is carryover allocation?

Carryover Allocation means an Allocation made to the Project if the Project will not be Placed in Service by close of the calendar year of the Allocation.

What is placed in service date Lihtc?

The placed-in-service date generally marks the beginning of the credit period. It is defined as the date the property is ready for occupancy.

How is maximum rent calculated?

To calculate, simply divide your annual gross income by 40. Another rule of thumb is the 30% rule, meaning that you can put 30% of your annual gross income in rent. If you make $90,000 a year, you can spend $27,000 on rent, and so your monthly rent should be $2,250.

What’s the difference between 9% and 4% tax credits?

The 9% tax credit is currently fixed at a rate of 9%; however, the 4% tax credit rate is adjusted each month. Click here for more information about the Applicable Federal Rate. 9% projects are subject to “carryover allocation” requirements.

What are the 4% and 9% LIHTC credits?

The 4% tax credit (30% subsidy) is for the acquisition of existing buildings for rehabilitation and new construction financed by tax-exempt bonds. The 9% tax credit (70% subsidy) is usually for new construction and substantial rehabilitation without federal subsidies.

Is the 9% tax credit a carryover credit?

The 9% tax credit has been fixed at a rate of 9% since 2008. As of December 2020, the 4% tax credit rate is also fixed. Click here for more information about the Applicable Federal Rate. 9% projects are subject to “carryover allocation” requirements.

How does the 9% housing tax credit work?

The below information corresponds to the 9% Housing Tax Credit round, which is highly competitive and awarded based on a Regional Allocation Formula (RAF) with additional set asides for developments at risk of losing affordability and subsidy, developments financed through USDA, and those with nonprofit owners.