What is a low -income housing tax credit?
Low -income housing tax credit is the Federal Subsidy Program of the United States, which was adopted in 1986. The aim of this initiative is to provide incentives for the development of housing for individuals with low income in every state. This is achieved by granting tax credits to developers that they can sell to investors. The low -income tax credit program requires joint efforts of the internal Revenue Service (IRS), the Ministries for Housing and Development of Cities (HUD) and agencies from each state.
Although a low -income housing tax credit is a federal program, it is a program that is done with the help of state authorities such as housing financing agencies. The process begins when the IRS provides a state body with credits. It is therefore the responsibility of the Office to distribute credits to developers who meet the qualifications. Credits are transferred every year from the Federal Government to state authorities. The state authority has two years to review the shortcuts before they are returned to the Federal Government for redistribution.
The Office of Each State may develop a distribution plan, but must follow certain federal instructions. First, the state must prefer distribution to developers with projects that are in the lowest income for individuals. Secondly, the priority must be given to projects that are designed to maintain low costs for the longest time. Thirdly, 10 percent of the credits of the state granted must be reserved for projects outlined by non -profit organizations.
In addition to these rules, there are also rules for those who want to get a low -income tax credit. The federal government outlined two requirements for threshold values of income. One known as the rule of 20-50 requires rent limitation and 20 percent of the occupancy of individuals whose incoji is at least 50 percent below the average income of the area designed for HUD. The second threshold requirement, known as the 40-60 rule, requires limitationEmotional and occupancy 40 percent of units individuals whose income is at least 60 percent below the average income of the area. The project must meet one or the other of these standards.
Thelimited rate for low -income individuals must take into account the rates of public services. In addition to receiving credits, the developer must conclude a written agreement stating that this property will maintain these standards for at least 30 years. Once the developer has received credits, it can sell them to investors. Investors can then take advantage of the allocation of low -income tax credit they receive to reduce their tax liability for ten years if the property remains in line.