Tax Credits for Low-Income Housing Development refer to federal and state tax incentives designed to encourage the development and rehabilitation of affordable housing for low-income individuals and families. These credits reduce the amount of tax owed by developers in exchange for their investment in low-income housing projects.
The most notable program in the United States is the Low-Income Housing Tax Credit (LIHTC), established under the Tax Reform Act of 1986. This program allows developers to receive a credit against their federal income tax liability for a period of ten years, based on the cost of developing qualified low-income housing.
For example, if a developer invests $1 million in constructing a low-income housing project, they may be eligible for a tax credit worth a percentage of that investment, which can be claimed annually. These credits can also be sold to investors, providing upfront capital for the housing project while ensuring affordability for tenants.
These tax credits play a crucial role in addressing the shortage of affordable housing and promoting economic development in low-income communities.
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