Low-Income Housing Tax Credit (LIHTC)

About the Low Income Housing Tax Credit (LIHTC)

The Low-Income Housing Tax Credit program provides tax credits for developers to:

• construct,
• rehabilitate, or
  
• acquire and rehabilitate qualified low-income rental housing.

These development projects include multifamily and single-family rental housing units. Eligible applicants include for-profit, nonprofit, and housing authority developers. OHCS reserves and allocates credits to eligible properties through the Oregon Centralized Application process.

The department sets aside a minimum of 10% of the 9% credit authority for each calendar year to nonprofit sponsors. OHCS has another discretionary set-aside of 25% for preservation.

Background

The Low-Income Housing Tax Credit (LIHTC) is a federal program used to finance the construction, acquisition, and rehabilitation of affordable rental housing for families and individuals with low incomes. The program was created in 1986 by the Tax Reform Act and made permanent in 1993.

LIHTC gives investors a dollar-for-dollar reduction in federal tax liability in exchange for investing in affordable rental housing. Investor’s equity subsidizes the development, allowing units to rent below-market rates. In return, investors are eligible to receive tax credits paid in annual allotments over ten years. Financed projects must ensure tenant income eligibility requirements and restricted rents for 30-60 years after project completion. In other words, owners must keep rents below market rates and available to low-income tenants.

OHCS is the housing finance agency that allocates LIHTC for affordable housing developments.

4% LIHTC and 9% LIHTC

There are two types of tax credits:  9% credits, which are awarded on a competitive basis and 4% credits which require an allocation of private activity bonds to be generated.

4% credits are available as a right to projects funded with private activity bonds (PAB), a type of tax-exempt multifamily housing bond. There is a maximum cap for all private activity bonds issued by the state of Oregon each year.

Oregon has already reached that cap which is why LIHTC is not available in the 2024. There are usually more requests for 9% credits than OHCS can fund. LIHTCs are anticipated available in 2025.

Qualified Allocation Plan

Development projects are evaluated through the Oregon Consolidated Application and an updated Qualified Allocation Plan (QAP) will reflect such. This is a document updated every two years and describes priorities for how tax credits will be allocated.

Developments using both 9% and 4% credits must meet financial feasibility requirements. The QAP is one area where OHCS can tailor LIHTC to address state and local goals.

Learn more about OHCS' QAP and how to get involved.

Eligibility

All types of affordable rental housing developments qualify under the tax credit guidelines including:

• New construction
• Acquisition with rehabilitation of existing properties
• Rehabilitation

At a minimum a development must:

• Set-aside 20% of the units as rent-restricted and available to tenants whose incomes do not exceed 50% of the area median income, or
• Set-aside 40% of the units as rent-restricted and available to tenants whose incomes do not exceed 60% of the area median income.

Met through restrictions of all units at or below 60% or an average of units from 80% AMI to 20% AMI.

Income limits

Income limits are defined annually by the U.S. Department of Housing and Urban Development (HUD) based on family size and development location. As the family size increases or decreases, the maximum qualifying income allowances increase or decrease accordingly. The development’s low-income units must have income qualifying tenants and rent appropriately restricted to restricted AMI levels.

Maximum gross rents allowed under the program vary by area,the number of bedrooms in a unit, and are annual calculated by HUD via the Metropolitian Tax Subsidy Program (MTSP) methodology. The development must be maintained as low-income housing for an initial 15-year compliance period and is subject to an extended use period of an additional 45 years required by the state of Oregon.

HUD income and rent limits

How to apply

The QAP must be updated before OHCS releases the next round of LIHTC funding. We are currently engaging with partners on the QAP.

All applications must go through the Oregon Centralized Application (ORCA) process. The tax credit award process consists of three separate application procedures. Each process requires a separate financial evaluation by OHCS.

1. Initial Request: The initial request is through the OHCS ORCA process. This application process determines projects selected to move forward for a reservation, the amount of tax credits allowable for the project, and requirements and conditions of award.
2. Carryover Allocation Request (9% ONLY): This request must be submitted if a project with reserved tax credits will not be placed-in-service within the year tax credits were allocated. Please fill out the 2024 Carryover Application. A tax credit recipient must be able to provide documentation showing:
   
1. Project has expended at least 10% of project costs by the end of the year or within 12 months of the carryover request.
   
• Sponsor's Self Certification of Costs - 10% template 
  
2. The applicant has site control.
   
3. The application must be revised, if necessary, to reflect the current financial situation (cost increase or reduction).

After these documents are provided, OHCS executes a Carryover Allocation Agreement with the applicant and notifies the IRS via form 8610 schedule A. See a CPA sample certification letter. 

3. 8609 - Placed in Service Request: When a project is completed the tax credit recipient must provide final documentation of costs and when the project was Placed in Service. This application request is called "The Close Out Application with 8609 Issuance Request" and must include:

1. Final, as-built, cost verification, syndication and/or limited partnership agreement
2. Certification of all subsidies
3. CPA cost certification to verify expenditures eligible for credits.
   

Key documents in these application processes include:

• Offer of Reservation: Once a project has been reviewed and a tax credit amount is determined, an Offer of Reservation, stating the proposed amount of tax credit, is sent to the applicant.
• Reservation of Extended Use Agreement: The applicant must pay a reservation charge that is 5% of the annual tax credit amount. Once paid, OHCS and the applicant will enter into a binding commitment that reserves the tax credit allocation and guarantees the project will be maintained as low-income housing for at least 30 years.
• Declaration of Land Use Restrictive Covenants: The applicant must enter into a Declaration of Land Use Restrictive Covenant once the project is placed in service but before OHCS sends final tax documents to the IRS. This document must be recorded as a deed restriction on the property and proof of recording must be submitted to OHCS.
  
• Form 8609: This form is the final document submitted to the IRS showing the actual amount allocated for each project. There must be a separate 8609 form for each building that is placed in service. The 8609 form allows the credits to be claimed on tax returns. Please note recent changes to submitting IRS Form 8609 and required documentation from tax credit recipients.

More information

OHCS General Policy and Guidelines

LIHTC compliance material

Core Development Manual

Market Analysis Guidelines

Approved Market Analysts