The Low-Income Housing Tax Credit, or LIHTC, is a dollar-for-dollar reduction of federal income taxes owed by owners/investors in qualified projects for tenants whose incomes are at or below 60% of County Median Income (CMI).
WHEDA was appointed by the Governor to administer the IRS federal Low-Income Housing Tax Credit Program for Wisconsin, so an application for Tax Credit must be submitted to WHEDA. Applicants must meet mandatory threshold requirements for financing, market, site control, and zoning. Applications are then evaluated and points are awarded for select criteria as outlined in WHEDA's
current Qualified Allocation Plan.
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 nearly $342 million in tax credits, resulting in the development and rehabilitation of more than 53,000 units of rental housing for low- to moderate-income families, seniors, and persons with special needs.
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
1 WHEDA, Multifamily Tax Credits, “Wisconsin Standard Multifamily Tax Subsidy Project Estimated Maximum Income and Rent Limits” (April 2017)
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.
The LIHTC program creates housing that is affordable for low- and moderate-income households. Populations broadly served through WHEDA's LIHTC program include the elderly, chronically homeless, workforce, individuals, and families.
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 $21,950 to $31,650 for a family of one and from $31,300 to $45,200 for a family of four. The 60% county median income in Wisconsin ranges from $26,340 to $37,980 for a family of one, and from $37,560 to $54,240 for a family of four. For specific county-by-county information, go to the Income and Rent Limits section under Monitoring: https://www.wheda.com/LIHTC/Monitoring/.
The Qualified Allocation Plan (QAP) ensures that WHEDA's LIHTC program serves a broad population of beneficiaries through set categories. The total amount of LIHTCs to be awarded are dispersed into these categories to ensure that different kinds of projects receive an award. In addition to a general set-aside category, others include supportive housing (homeless), projects in rural communities, the preservation of federally assisted housing units, and projects proposed by non-profit developers.
Awarded applicants are those who receive high scores in their designated category. To ensure that LIHTC projects are high quality developments, the QAP features fourteen scoring criteria.
Opportunity Zones are locations with income above the county median, low unemployment rates, high-achieving schools, and a high need for affordable housing. In addition, projects located near services like grocery stores, schools, hospitals and medical clinics, libraries, public parks, job training facilities, continuing education programs, and those that feature on-site resources like in-unit internet access and community room space, have the potential to score extra points.
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
2National Association of Home Builders, The Local Economic Impact of Typical Housing Tax Credit Developments (March 2010)3National Association of Home Builders, The Local Economic Impact of Typical Housing Tax Credit Developments (March 2010)