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- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
Introduction to a Tax Credit Property
An apartment building or any accommodation which is owned by a developer or landlord who engages in the federal low-income housing tax credit (LIHTC) program is called a tax credit property.
In exchange for renting some or all of their apartments to low-income tenants at a small rent, these developers and landlords can claim tax credits for eligible buildings.
The working of tax credit properties
The low-income housing tax credit (LIHTC) is created to lower the rents that low-income tenants have to pay.
And in arrival, the government subsidizes the property owners who get hold of, construct, and rehabilitate affordable rental housing. The LIHTC was passed as part of the Tax Reform Act of 1986.
From the mid-1990s, close to 110,000 affordable rental units have been built under the LIHTC every year giving a total of 2 million units since its inception says the Tax Policy Center.
The state governments receive tax credits issued by the federal government. These credits then are given through housing to private developers of affordable rental housing projects.
The credits are sold to private investors by developers in exchange for funding. Once the housing is rented and over a 10-year period then the investors or developers can claim the tax credits.
The process of qualification for the tax credit apartment by the property owners
Apartment buildings, single-family homes, townhouses, and duplexes can meet the criteria for the credit. The below-mentioned income and gross rent criteria must be met by owners and developers.
The tenants whose income is 50% or less of the area’s median income adjusted for family size (AMI) must occupy at least 20% of units.
The tenants with an income of 60% or less of AMI should be occupying at least 40% of the units.
The tenants with an average income of no more than 60 % of AMI should occupy at least 40% of the units, and the tenants with income greater than 80% of AMI do not qualify to occupy any units.
Depending upon the share of tax credit rental units in the project the requirements for the gross rent test is that the rents should not go above 30% of either 50 or 60% of AMI.
All LIHTC projects should follow the income and rent tests for 15 years or till the credits are recalled. Along with that, there is an imposition of an extended compliance period of thirty years.
Corporations that have sufficient income tax liability to take advantage of non-refundable tax credits are the Investors in LIHTC projects.
For instance, for LIHTC investments the financial institutions have a good chunk of sizable income tax liabilities and have a far-sighted planning period, hence they usually receive credit in Community Reinvestment Act.
Conclusion
An apartment building or any accommodation which is owned by a developer or landlord who engages in the federal low-income housing tax credit (LIHTC) program is called a tax credit property.
Through LIHTC the landlords can claim tax credits for eligible buildings.
As there is a dearth of affordable housing for low-income populations, this program is created to motivate private investors to build housing for low-income populations.
