Section 42 LIHTC


  1. What is the Low Income Housing Tax Credit Program (LIHTC)?
    1. The LIHTC program was born as a result of the Tax Reform Act of 1986.  In its twenty-eight year history, the program has performed well in providing safe, decent affordable housing to over two million households. The program has enjoyed the support of over one hundred and fifty corporations and financial institutions and is considered a safe, conservative, and predictable investment. Truly a successful Public and Private Partnership.
    2. To receive credits, which can be worth between 30% and 90% of a project’s cost, housing developers promise to keep rents affordable to people who make 60% or less of the area’s median income.1
    3. The credits are generally sold to large Corporations and Financial Institutions that want to reduce taxes, increase earnings per share and comply with the 1976 Community Reinvestment Act (CRA), which mandates that banks invest and make loans in traditionally under-served neighborhoods.
    4. The LIHTC program provides a Dollar-for-Dollar Tax Reduction in Tax Liability.
  2. Why invest in the LIHTC Program today?
    1. The program works! A time tested, efficient way for institutional investors to meet current and future investment objectives. It is part of the tax code and does not need annual appropriations.
    2. Underwriting and investment structures are transparent with multiple sources of due diligence available.
    3. Take advantage of the attractive returns. Currently LIHTC Funds are yielding about 7% After-Tax (10.7% Pre-Tax) versus 2.64% for the 10 Year Treasury.
    4. Foreclosure rate is less than 1%.2
    5. Tax Credits placed in service after 2007 can be used against AMT.
    6. On January 15, 2014, FASB issued ASU 2014-01 allowing “below the line accounting.”
    7. Today’s Affordable Housing transactions:
      1. Are well located properties (new or rehabilitated)
      2. Have stronger LP structure with increasing reserves and strict removal provisions.
      3. Include Hell or High water guarantees with strong solvent developers.
  3. Benefits from the LIHTC Program
    • Reduce Effective Tax Rate
    •  Increase Shareholder Value
    • Reduce Federal Tax Liability on a permanent basis
    • Turn Tax Liability into an asset by getting a
      good return on dollars
    • Increase Earnings per share (EPS)
    • previously earmarked for US Treasury
    • Increase Cash flow
    • Community Reinvestment/Social Benefits


1 Wall Street Journal Article, November 4, 2009

2 The Low-Income Housing Tax Credit Program at Year 25: A Current Look at Its Performance, Reznick Group




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