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Understanding Low-Income Housing Tax Credits: What They Are and How They Work

Low-Income Housing Tax Credits (LIHTC) represent a federal program designed to encourage private investment in affordable rental housing. Created by Congress in 1986, this program has become one of the largest sources of funding for affordable housing development in the United States. Rather than providing direct cash to renters, the program works by giving tax credits to investors and developers who build or rehabilitate rental properties for people with lower incomes.

The basic mechanism is straightforward: a developer or property owner receives a tax credit from the federal government when they construct or renovate housing that will be rented to households earning below certain income thresholds. This tax credit reduces the amount of federal income tax the investor owes. Because the tax credits make projects financially viable, developers can offer lower rents to tenants while still earning a return on their investment.

As of 2023, the LIHTC program supports approximately 3.3 million rental units across the country. These are real apartments and homes in real communities—not a separate affordable housing system, but regular rental properties with reduced rents for qualifying residents. About 90 percent of LIHTC units remain affordable for at least 30 years, providing long-term stability in the housing market.

The program operates through state housing finance agencies, which allocate credits to different regions based on population. In 2023, Congress increased the annual credit authority to help address the affordable housing shortage. Each state receives a formula-based allocation, and housing agencies within each state decide which projects receive credits.

Practical Takeaway: LIHTC properties look and function like any other apartment complex or rental home. If you find a rental property advertising below-market rents and the landlord mentions it is LIHTC-funded, that indicates the property was developed with this tax credit program. Understanding how the program works can help you recognize these housing options in your community.

Income Limits and Rent Restrictions: Who Can Rent LIHTC Properties

LIHTC properties must reserve a portion of units for households with incomes at or below specified limits. The most common requirement is that at least 20 percent of units must be available to households earning no more than 50 percent of the area's median income (AMI), or at least 40 percent of units for households at 60 percent AMI. Many properties exceed these minimums, making more units available to lower-income households.

Area median income varies significantly by location. For example, in 2024, the AMI for a family of four was approximately $89,000 in rural areas but exceeded $140,000 in high-cost urban markets like San Francisco and New York. A household earning 60 percent of AMI in San Francisco could earn around $84,000, while the same percentage in a rural county might be $53,400. This means the same income level qualifies households for LIHTC housing differently depending on location.

Rent in LIHTC properties is limited to 30 percent of the household's gross monthly income, with a cap based on the area's median rent. This protection ensures that rent consumes a reasonable portion of income. If a household earns $2,000 monthly, their LIHTC rent would not exceed $600, regardless of market rates in the area. This rent limitation persists for the entire LIHTC compliance period, typically 30 years.

Income calculations follow standard federal definitions. Household income includes wages, self-employment income, Social Security, unemployment benefits, child support received, and other sources. The property owner verifies income through documents such as tax returns, pay stubs, or benefit statements. Students, elderly residents, and disabled individuals may have modified income calculations in some circumstances.

A practical example: A single person in Phoenix earning $28,000 annually might find a LIHTC studio apartment renting for $700 monthly, compared to market rates of $1,200. Their $28,000 income puts them at approximately 60 percent of Phoenix's AMI, making them eligible for properties with that income restriction. The capped rent of $700 (30 percent of their income) versus $1,200 saves them $500 monthly.

Practical Takeaway: When searching for rental housing, inquire whether properties are LIHTC-funded and what income limits apply. Check your area's current AMI figures through your state housing finance agency website. Calculate 30 percent of your monthly household income to understand the maximum rent you would pay in LIHTC housing, then compare this to market-rate rents in your area.

Finding LIHTC Properties in Your Community

Locating LIHTC properties requires some research, as they are not always obviously identified as such. Many LIHTC properties appear identical to conventional apartments—they are not segregated or marked differently. The best starting point is your state's housing finance agency, which maintains databases or lists of properties funded through the program.

State housing finance agencies publish directories of active LIHTC properties, typically available on their websites at no cost. These directories usually include the property name, address, contact information, number of units, income restrictions, and sometimes amenities. For example, the California Housing Finance Agency maintains a searchable database of over 3,000 properties. Texas, Florida, and New York—states with large LIHTC inventories—similarly provide accessible property lists.

Online resources supplement state agency databases. The National Housing Preservation Database, maintained by the National Housing Trust, allows users to search for affordable housing properties nationwide by address, city, or zip code. The Database of Affordable Housing includes LIHTC properties alongside other affordable options. These tools are free and do not require registration.

Local community development organizations often maintain lists of properties in their service areas. Nonprofits working in housing advocacy, homeless services, or community development frequently compile local affordable housing guides. Contact your city or county community development department, which may have housing resource coordinators familiar with properties in your area.

When contacting properties, ask directly whether units are available under LIHTC income restrictions, what those income limits are, what the current rent is, and what documentation you would need to provide. Leasing staff can explain their specific application process and timeline. Properties may have waitlists, so early inquiry is worthwhile even if units are not immediately available.

Another approach is searching rental websites using affordability filters or price ranges below market rates in your area, then contacting properties to ask about LIHTC funding. Some property management companies specialize in LIHTC properties and manage multiple units; searching their names can yield several options at once.

Practical Takeaway: Start by visiting your state housing finance agency's website and searching their LIHTC property database for your city or county. Write down three to five properties matching your location preferences. Call or visit each property's leasing office to confirm current availability and income limits. Keep this information in a document for reference as you explore options.

Documentation and Renter Verification Requirements

LIHTC properties must verify that residents meet income limits. This verification is not invasive or unusual—it follows standard rental practices used across the industry. Property owners conduct income verification to confirm you meet the property's income restrictions, protecting both the program's integrity and your access to reduced rents.

Standard documentation for income verification includes recent pay stubs (typically the last 30 days), W-2 forms from the prior year, or recent tax returns. Self-employed individuals provide business tax returns. Households receiving Social Security, disability benefits, or unemployment submit award letters from the benefit-issuing agency. Families with children may document child support income through court orders or payment records.

Verification also addresses household composition. You will list all household members, their relationships, ages, and any students enrolled in school. This information determines household size, which affects income limit calculations and rent amounts. Properties ask these questions to apply proper income thresholds—a family of four has a higher income limit than a single individual.

Background and credit checks follow standard rental industry practices. Most LIHTC properties conduct criminal background screening and credit history review, similar to market-rate properties. However, because LIHTC properties serve lower-income populations, many operate with more flexible policies regarding previous credit problems or financial difficulties. Properties vary in their specific requirements, so discuss individual circumstances with leasing staff.

Documentation requirements occur at lease signing and, in some properties, annually thereafter. This re-verification ensures that circumstances have not changed dramatically and that the household remains within income limits