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  • Low-Income Housing Tax Credits

    Getting Started Allocating Monitoring

    Background

    The Low-Income Housing Tax Credit (LIHTC) program was created in 1986 to encourage private investment in the development and rehabilitation of rental housing for low- to moderate-income families, seniors, and persons with special needs. LIHTCs are governed by Section 42 of the Internal Revenue Code and corresponding Federal Regulations. The Federal government allocates LIHTCs to each state according to a population-based formula. At the state level, Housing Credit Agencies administer the LIHTCs to owners of housing developments according to their state Qualified Allocation Plan, which must meet Federal guidelines.

    The Wisconsin Housing and Economic Development Authority (WHEDA) is responsible for allocating and administering LIHTCs in Wisconsin. Since the inception of the LIHTC program, WHEDA has allocated $326.2 million in tax credits, creating 51,940 units of housing in 1,135 developments across the state. These developments are located in 69 counties and 303 municipalities throughout Wisconsin.

    How LIHTCs Work

    LIHTCs are used by developers to achieve lower rents that are affordable for low- and moderate-income households. Many LIHTC properties also include market-rate units that are available to households regardless of income.

    LIHTCs are neither a grant nor a loan; they are Federal tax credits that are used to offset income tax liability. The owner of a housing development uses the tax credits to generate an equity investment in the property. The equity investment reduces the amount of lending, and monthly debt service, needed to finance the development. Lower debt on the property allows the owner to charge lower monthly rents.

    The developer can convert the tax credits into equity in one of three ways: (1) claim the tax credits directly against their own income tax liability; (2) sell the tax credits to an investor in exchange for capital, or equity, for development or rehabilitation of the housing; or (3) sell the tax credits to a syndicator who bundles tax credits from different developments and then sells them to investors.

    LIHTCs are awarded by WHEDA to housing developers through a highly competitive process. Applicants must meet certain threshold requirements to be considered for the program. Priority is given to developments which will serve the lowest income families and remain affordable for longer periods of time. WHEDA’s scoring process, detailed in its Qualified Allocation Plan, is updated annually to reflect current market and economic conditions.

    As a threshold for eligibility, LIHTC developments must remain affordable for a 30-year period. Developments must also meet one of two thresholds for occupancy. At least 20% of all units in a development must be reserved for households at or below 50% of the area median income, or at least 40% of all units must be reserved for households at or below 60% of the area median income.1

    How LIHTCs are Monitored

    WHEDA continually monitors the physical condition, management, and income compliance of the property during the 30-year period. Development owners must submit annual certifications and unit status reports, as well as quarterly occupancy reports, to WHEDA.

    WHEDA conducts on-site property inspections and file reviews of every LIHTC development throughout the 30-year compliance period. If WHEDA finds noncompliance with program rules, WHEDA informs both the development owner and the IRS. The owner has 30 days to remedy the noncompliance, unless it is a critical violation, for which they will have only 72 hours. If the IRS determines that the noncompliance has not been adequately remedied, the IRS may recapture some or all of the tax credits allocated to the development.

    How LIHTCs Benefit Communities

    Who Lives in LIHTC Housing?

    The LIHTC program creates housing that is affordable for low and moderate income households. The highest use of LIHTCs in Wisconsin is for elderly housing. Since tracking the type of LIHTC units being developed in 2005, WHEDA has allocated tax credits for 14,981 units. Of those, 49% were elderly units, 46% were family units, and 5% were special needs units. Within LIHTC developments, 10% of the units are rented to households at market rates and without regard to income.

    What Income Levels are Served?

    LIHTC units provide housing for households with incomes at or below either 50% or 60% county median income.

    The 50% county median income in Wisconsin ranges from $20,950 to $28,950 for a family of one and from $29,000 to $41,350 for a family of four. The 60% county median income in Wisconsin ranges from $25,140 to $34,740 for a family of one, and from $35,880 to $49,620 for a family of four. For specific county-by-county income information go to the Income and Rent Limits section under Monitoring: https://www.wheda.com/LIHTC/Monitoring/.

    What is the Local Economic Impact?

    All LIHTC developments involve either the construction or renovation of housing units. This activity has a positive effect on the economy as it creates jobs and increases local tax revenue.

    The National Association of Home Builders (NAHB) estimates that the one-year local impact of constructing 100 units for a typical family LIHTC development includes $7.9 million in local income, $827,000 in taxes and other revenue for local governments, and 122 local jobs. The annual recurring impact of those 100 family units includes $2.4 million in local income, $441,000 in taxes and other revenue for local governments, and 30 local jobs.2

    Similarly, NAHB estimates that the one-year local impact of constructing 100 units in an elderly LIHTC development includes $7.3 million in local income, $768,000 in taxes and other revenue for local governments, and 113 local jobs. The annual recurring impact of those 100 elderly units includes $2.3 million in local income, $395,000 in taxes and other revenue for local governments, and 32 local jobs.3


    1 WHEDA, Multifamily Tax Credits, “Wisconsin Standard Multifamily Tax Subsidy Project Estimated Maximum Income and Rent Limits” (December 2013)
    2 National Association of Home Builders, The Local Economic Impact of Typical Housing Tax Credit Developments (March 2010)
    3 National Association of Home Builders, The Local Economic Impact of Typical Housing Tax Credit Developments (March 2010)