Understanding Housing Lingo: Low-Income Housing Tax Credit (LIHTC)
By Matthew Havniear, Housing Recovery Director
Welcome back to our Housing Lingo Blog. This edition explores the world of Low-Income Housing Tax Credits, or LIHTC for short. These tax credits play an important role in developing affordable housing across the United States. Let’s explore how they work.
What are Low-Income Housing Tax Credits?
The Low-Income Housing Tax Credit (LIHTC) Program was established in 1986 to support the construction or renovation of affordable rental homes for lower-income families. The program provides tax breaks to developers and property owners, enabling them to offer affordable rents. Although the LIHTC Program does not directly fund housing development, the tax breaks, or “tax credits,” are a significant resource for developers. These credits help them provide affordable housing options to low-income individuals and families at below-market rates.
How Does it Work in Oregon?
The LIHTC Programs are administered by state agencies, allowing states to tailor the program to their specific housing needs. In Oregon, the state agency that administers the LIHTC program is Oregon Housing and Community Services (OHCS). OHCS decides how to utilize the tax breaks in our state based on factors like the location of the housing project, housing needs, the number of units reserved for low-income families, and other factors.
How does it work for families?
To be eligible for affordable housing supported by the LIHTC program, families must meet specific income requirements based on the number of people living in their home or household size and their location, typically the county where they live. Families can apply for these rentals directly through property management offices or their local housing authority. They will need to provide proof of income and household size. Rent for LIHTC units is often calculated as a percentage of the family’s income, improving the affordability compared to market-rate rentals. Now, let’s dive a little deeper into the income rules.
- Income eligibility: Your family’s income can’t exceed certain limits, which depend on your family size and where you live. These Department of Housing and Urban Development (HUD) Income Limits change yearly, so it is important for families to understand how changes in their household income may impact their ongoing eligibility for LIHTC properties. Let’s break down the eligibility lingo:
- Total Annual Income From All Sources: This is the amount your household expects to receive from all sources over the next year before taxes are taken out or the “Net Annual Income.”
- Income Limit Per Household Size: HUD sets a maximum income limit for subsidized programs based on factors like your household size and location or county. This limit helps determine if you qualify for assistance.
- AMI Calculation: The Area Median Income (AMI), determined annually by HUD, varies by area and household size. For LIHTC, the applicable AMI is based on an “imputed household size,” calculated as 1.5 times the number of bedrooms in the unit.
- Recertification: If you’re already receiving housing assistance, you must recertify your income every year to remain eligible for LIHTC properties. If your family’s income changes and you exceed the allowable income limit, your family may be forced to move out. Families are usually given a grace period to do so, sometimes up to a year. Properties must do this because they follow strict LIHTC rules regarding the percentage of low-income families in their rentals or risk substantial financial consequences, jeopardizing their ability to provide housing at below-market-rate rent.
- Total Annual Income From All Sources: This is the amount your household expects to receive from all sources over the next year before taxes are taken out or the “Net Annual Income.”
- Rent Calculation: Rent limits determine the maximum amount families can pay for housing based on their income. These limits ensure that housing remains affordable for low-income and very low-income families. Let’s look at rent limits based on family income level. OHCS provides a detailed rent price breakdown for Jackson County in the 2024 Income & Rent Limits | LIHTC Guide
- Maximum Gross Rent: The Maximum Gross Rent is the total amount that a household can be charged for rent and utilities. This should not exceed 30% of the household’s income, which is set according to specific income brackets relative to the Area Median Income (AMI).
- Very low-income families: Families whose incomes are between 30% and 50% of the poverty guideline are classified as “Very Low Income (VLI). For these families, rent plus utilities should be no more than 30% of their income.
- Maximum Gross Rent: The Maximum Gross Rent is the total amount that a household can be charged for rent and utilities. This should not exceed 30% of the household’s income, which is set according to specific income brackets relative to the Area Median Income (AMI).
Links to Resources
To learn more about Low-Income Housing Tax Credits and how they can benefit your community, consider exploring the following resources:
What’s Next?
In our next blog, we’ll continue our Housing Lingo Series by breaking down another important aspect of affordable housing: Section 8 Housing Choice Vouchers. Stay tuned for insights into how this program assists low-income families in securing safe and decent housing.
Thank you for joining us on this journey to “Understanding Housing Lingo and Programs.” Together, we can build stronger, more inclusive communities.