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Give Yourself Some (Tax) Credit

Sources & Uses
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Tax Credit Overview

LIHTC Overview

The amount of equity that can be raised for a project is a function of how much “qualified basis” there is in the project. “Basis” is simply the project costs that are subject to depreciation – like construction, appliances and traditional soft costs (e.g., professional fees). Costs that are not depreciable, such as the land value or operating reserves, are not includable in basis. Also not included in basis are costs that are funded by ineligible sources such as grants and federal subsidies. The “qualified basis” is calculated by multiplying the total eligible basis by the percentage of tax credit units in the project (or their percentage of square footage if this is lower). The portion of tax credit units is known as the “applicable fraction.” For example, if the “total eligible basis” is $1,000,000, and the “applicable fraction” is 80% (80 out of 100 units are tax credit units), then the “qualified basis” would be $800,000.
At least 20% of the units must be affordable to households with incomes below 50% of the area median income (AMI); or alternatively, 40% of the units must be affordable to households below 60% of the AMI;
Rents can be no greater than 30% of the household income, based on the size of the housing unit (regardless of household size occupying the unit);
For rehabilitation, the total cost must be at least $3,000 per tax credit unit, or 10% of the project’s unadjusted basis (see explanation of basis below);
Must be rental housing – homeownership is not eligible; • Financing source must be eligible (e.g., grants, most federal subsidies and tax-exempt bonds are not eligible sources); and
•Most rental housing types are eligible, however for all housing types other than SRO and transitional housing, there must be a lease for at least six months; SROs are eligible so long as the unit is rented on a month-by-month basis or longer. Transitional housing is eligible if the project assists homeless persons find permanent housing within 2 years, provides a kitchen and bath in each living unit and provides supportive services. Note that housing occupied exclusively by students, and dormitories, are not eligible for tax credits.

LIHTC


Total Eligible Basis x Applicable Fraction = Qualified Basis
Qualified Basis x Tax Credit Rate = Annual Tax Credits
Annual Tax Credits x 10 (years) = Total Value of Tax Credits
Total Value of Tax Credits x Investment Per Tax Credit Dollar = Net Equity Investment
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Find your County's AMI Benchmarks here
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Why do investors pay for tax credits?

Tax Credit Investor Value
1
Tax Credit
Credit Release Schedule (years)
Annual Tax Credits
Total Value of Tax Credits
Cost of Equity%
Total Return %
Total Return/Year %
Project Value
Net Equity Investment
Investor Net Value
1
LIHTC 9%
10
$0.00
$0.00
91%
​
0.00%
$0.00
$0.00
$0.00
2
LIHTC 9%
10
$0.00
$0.00
91%
​
0.00%
$0.00
$0.00
$0.00
3
LIHTC 9%
10
$0.00
$0.00
91%
​
0.00%
$0.00
$0.00
$0.00
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Syndicators

The two leading equity pools sponsored by national non-profit intermediary organizations are the “Enterprise Community Investments”, established by Enterprise Community Partners, and the “National Equity Fund” (NEF), initiated by the Local Initiatives Support Corporation (LISC). Both raise their investments from large corporations, and place their equity in non-profit sponsored lowincome housing projects, often organizations with which they have ongoing relationships.

Rent Restriction

LIHTC rents are not based on a tenant’s income. Instead, rent is set by the use restriction tied to the unit
30% of the corresponding AMI Divided by 12 months. Ex. A 1 Bed Room has an assumed household size of 1.5 people. If the unit is restricted for a 60% AMI use then we find the corresponding annual income limit for a 1.5 person household at 60% (
$57,555.00
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)and we take 30% of it (the amount of rent that is consider to be reasonable)to get
$17,266.50
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which is the annual rental allowance. Then we simply divide by 12 to get the rent per month
$1,438.88
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QAP

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Find your States QAP here
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The QAP selection criteria must address 10 items:
(1) location;
(2) housing needs;
(3) public housing waiting lists;
(4) individuals with children;
(5) special needs populations;
(6) whether a project includes the use of existing housing as part of a community revitalization plan;
(7) project sponsor characteristics;
(8) projects intended for eventual tenant ownership;
(9) energy efficiency; and
(10) historic nature.
These requirements are minimums; states can adopt more rigorous criteria that target advocates’ priority populations and locations. Most states establish detailed QAP selection criteria and set-asides based on the characteristics of their state’s needs

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