	Overview

The low-income housing tax credit (LIHTC) was created by the Tax Reform Act of 1986 ( P.L. 99-514 ) to provide an incentive for the development and rehabilitation of affordable rental housing. These federal housing tax credits are awarded to developers of qualified projects via a competitive application process administered by state housing finance authorities (HFAs). With lower financing costs, tax credit properties can potentially expand the supply of affordable rental housing. The LIHTC is estimated to cost the government an average of $9.9 billion annually. The process typically ends with developers selling allocated credits to outside investors in exchange for equity. 115-141 ) added a third income test option that allows owners to average the income of tenants. In addition to the income test, a qualified low-income housing project must also meet the "gross rents test" by ensuring rents do not exceed 30% of the elected 50% or 60% of area median gross income, depending on which income test option the project elected. Recent Legislative Developments

In late 2017, there was a revision to the Internal Revenue Code ( P.L. 115-97 ) that substantially changed the federal tax system. Most recently, the 2018 Consolidated Appropriations Act ( P.L. 115-141 ) made two changes to the LIHTC program. As was discussed in the " The Allocation Process " section, the act modified the so-called "income test" to allow for income averaging across tenants, and also increased the amount of credits available to states each year by 12.5% for years 2018 through 2021. These changes may have helped alleviate some concerns stemming from the 2017 tax revision's potential effect on LIHTC development.
The low-income housing tax credit (LIHTC) program is one of the federal government's primary policy tools for encouraging the development and rehabilitation of affordable rental housing. These nonrefundable federal housing tax credits are awarded to developers of qualified rental projects via a competitive application process administered by state housing finance authorities. Developers typically sell their tax credits to outside investors in exchange for equity in the project. Selling the tax credits reduces the debt developers would otherwise have to incur and the equity they would otherwise have to contribute. With lower financing costs, tax credit properties can potentially offer lower, more affordable rents. The LIHTC is estimated to cost the government an average of approximately $9.9 billion annually.
In late 2017, there was a revision to the Internal Revenue Code (P.L. 115-97) that substantially changed the federal tax system. The revision did not directly alter the LIHTC program; however, there had been early reports of downward pressure on tax credit demand stemming from the 2017 tax revision.
Most recently, the 2018 Consolidated Appropriations Act (P.L. 115-141) made two changes to the LIHTC program. First, the act modified the so-called "income test," which determines the maximum income an LIHTC tenant may have. Previously, each individual tenant was required to have an income below one of two threshold options (either 50% or 60% of area median gross income, depending on an election made by the property owner). With the modification, property owners may use a third income test option that allows them to average the income of tenants when determining whether the income restriction is satisfied. Second, the act also increased the amount of credits available to states each year by 12.5% for years 2018 through 2021.
This report will be updated as warranted by legislative changes.