Introduction to the Low-Income Housing Tax Credit ('LIHTC')
Created as part of the Tax Reform Act of 1986 and made permanent in 1993, the LIHTC is an indirect federal subsidy used to finance the construction and rehabilitation of affordable rental housing throughout the United States. This indirect subsidy comes in the form of a federal income tax credit under Section 42 of the Internal Revenue Code (the "Code"), which generally offsets an investor's federal income tax liability dollar-for-dollar for each LIHTC generated by a project and allocated to such investor. In the absence of the LIHTC program, Congress believed that private developers and investors would not provide a sufficient stock of affordable housing to meet the needs of low-income persons since these types of projects typically do not generate enough profit to warrant the investment. In addition to providing tax credits to subsidize a project, the LIHTC program provides numerous economic and social benefits to the low-income community and facilitates the productive use of abandoned or unused land in both urban and rural communities.