Section 42 (§42) – Affordable Housing

The Low-Income Housing Tax Credit (LIHTC)

A tax credit created under the Tax Reform Act of 1986 that gives incentives for the development of affordable housing aimed at low-income Americans. The credits are also commonly called Section 42 in reference to the applicable section of the Internal Revenue Code. The tax credits are more attractive than tax deductions as they provide a dollar-for-dollar reduction in a person’s federal income tax.

→The tax credit program differs from previous incentives in that…

→The program does not provide deductions to the investor’s income but provides, instead, credits which can be used against the investor’s bottom-line tax liability.

→The program is administered by the U.S. Department of the Treasury and is not a part of the Department of Housing and Urban Development (HUD) as are most other federal housing programs.

→Section 42 stipulates that the credit will be allocated on the state level and requires each state to designate an agency to administer the program.