The federal government provides tax incentives for developers to create low income housing within their communities. Qualifying for the tax breaks provided by the federal program can significantly lower the costs associated with construction new housing units or rehabilitating old units into low income housing.
The Low-Income Housing Tax Credit program (LIHTC program) is one of the best and most comprehensive tax incentives for developers who wish to construct affordable apartments or other low-cost housing units. The program was created by the Tax Reform Act of 1986 in order to encourage investments in lower income housing. An experienced Scottsdale, AZ business lawyer at Lotzar Law Firm, P.C. can assist you in determining if your development should qualify you for the Low-Income Housing tax credit program. If so, we can assist with the application process.
Understanding the Low-Income Housing Tax Credit Program
The Low-Income Housing Tax Credit Program provides a dollar-for-dollar reduction of tax liability to owners and investors who make low income housing available within their communities.
In order to be eligible for tax credits through this program, there are a variety of criteria established in Section 42 of the Internal Revenue Code that the development must meet. For example, one of the following must be true in order to be eligible to receive tax incentives under the Low-Income Housing Tax Credit Program:
- 20 percent or more of the residential units available within the newly constructed or rehabilitated building must be occupied by renters who have an income at or below 50 percent of the median gross income in the area. The units with the low income renters must be rent-restricted units.
- 40 percent or more of the residential rental units that are made available must be occupied by renters who have incomes equal to or below 60 percent of the gross median income in the area.
When a developer or investor seeks to take advantage of the tax credits that the Low-Income Housing Tax Credit Program makes available, a commitment must be made to keep the units rented to lower income individuals over the long-term. The property that is developed or rehabilitated needs to comply with the rent restrictions for 30 years from the time of the first taxable year in which tax credits are claimed.
The Arizona Department of Housing has also indicated that the Qualified Allocation Plan within the state (the plan that awards the credits) encourages the targeting of the credit to developers that do more than the minimum to provide low-cost housing. In other words, a developer that will make more units available to people at incomes lower than 50 or 60 percent of the median will typically be more likely to receive the tax credits.
Qualifying for and applying for credits can be a complex process and it is important that you complete all initial paperwork correctly. You also need to ensure you remain in compliance with ongoing obligations. Lotzar Law Firm, P.C. has extensive experience with the Low-Income Housing Tax Credit program and can provide assistance if you believe you qualify for this important tax-incentive. Call today to schedule a consultation and learn more about how a Scottsdale AZ real estate lawyer can assist you with your project.