An Introduction to the Design of the Low Income Housing Tax Credit

Publication Date: February 2006

Publisher: Library of Congress. Congressional Research Service

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Research Area: Social conditions

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Abstract:

The Low-Income Housing Tax Credit (LIHTC) is a federal provision that reduces the income tax liability of taxpayers claiming the credit. These taxpayers are typically investors in real estate development projects that have traded cash for the tax credits to support the production of affordable housing. The credit is intended to lower the financing costs of housing developments so that the rental prices of units can be lower than market rates, and thus, presumably, affordable.

The Gulf Opportunity Zone Act of 2005 (P.L. 109-135) expanded the amount of LIHTC allocation authority for Alabama, Louisiana, and Mississippi. In addition to the 2006 allocation of $1.90 per capita for each state, the LIHTC allocation was increased for 2006, 2007, and 2008. The act also makes an additional $3.5 million in LIHTC authority available to both Texas and Florida in 2006.

Other legislation introduced in the 109th Congress proposes additional increases in the allocation authority of the LIHTC. H.R. 2681, the Affordable Housing Tax Credit Enhancement Act of 2005, proposes to double LIHTC authority nationwide. Both H.R. 659 and H.R. 3159, the Community Restoration and Revitalization Acts of 2005, propose increases in, and administrative modifications to, the tax credit in order to target it more directly to low-income communities.

This report will be updated as warranted by legislative changes.