Tax Credit Program
Tax credit properties are required to maintain certain standards as prescribed by the rules of the LIHTC program. To ensure compliance, each property is inspected annually by TDHCA for physical appearance and maintenance of the fixed asset as well as having qualified residents in the units. If a property is “out of compliance” by not adhering to the rules the owner risks becoming ineligible to compete for future tax credit allocations and may also incur other punitive measures.
Further to the compliance rules for residents to gain tenancy in a tax credit property which are required by the LIHTC program, Tejas Housing Group properties have additional rules in place designed to ensure that our communities are clean, safe, and enjoyable for all residents.
Tax Credit Requirements
- Income qualified based on family size
- Limit on occupants per number of bedrooms
- All amenities are available to all residents free of charge
Tejas Housing Group Requirements
- No smoking permitted in units
- Clean rental, credit, and criminal history
- Monthly unit inspections for cleanliness and damages
The low-income housing tax credit (LIHTC) program, created in 1986 and made permanent in 1993, is an indirect federal subsidy used to finance the construction and rehabilitation of low-income affordable rental housing. Washington lawmakers created this as an incentive for private developers and investors to provide more low-income housing. Without the incentive, affordable rental housing projects do not generate sufficient profit to warrant the investment.
The LIHTC gives investors a dollar-for-dollar reduction in their federal tax liability in exchange for providing financing to develop affordable rental housing. Investors’ equity contribution subsidizes low-income housing development, thus allowing some units to rent at below-market rates. In return, investors receive tax credits paid in annual allotments, generally over 10 years.
Financed projects must meet eligibility requirements for at least 30 years after project completion. In other words, owners must keep the units rent restricted and available to low-income tenants. At the end of the period, the properties remain under the control of the owner.
Within general guidelines set by the Internal Revenue Service (IRS), state housing agencies administer the LIHTC program. In Texas, the LIHTC program is administered by the Texas Department of Housing and Community Affairs. State agencies review tax credit applications submitted by developers and allocate the credits. The IRS requires that state allocation plans prioritize projects that serve the lowest-income tenants and ensure affordability for the longest period.
Once an applicant secures a tax credit reservation, the developer must leverage the financial resources for the development. Under a typical LIHTC transaction, a developer must secure a conventional loan from a private mortgage lender or public agency, gap financing from a public or private source and equity from the developer or private investor in exchange for the tax credits.
Once the project is built, states must ensure that it meets the LIHTC eligibility requirements. The LIHTC property must comply throughout the 15-year period or investors will be exposed to recapture of some of the credits. State housing agencies are responsible for monitoring LIHTC property owners by requiring them to certify on an annual basis that they are renting units to qualified low-income tenants. If property owners are found to be out of compliance, they can lose some of their credits.