The issue of cost-burdened renters and housing affordability remains a pressing concern. According to the Joint Center for Housing Studies at Harvard University, rental affordability has continued to deteriorate as more households are forced to allocate a larger portion of their income towards rent.
One solution that stands out is the need for increased housing development. A recent article published in the Novogradac Journal of Tax Credits highlighted how the federal low-income housing tax credit (LIHTC) has been an effective tool in providing much-needed affordable rental homes.
However, it’s not solely up to the federal government. Many states have taken matters into their own hands by creating tax incentives for affordable housing development, with over 25 states already implementing models alongside LIHTC.
For state governments looking to participate in these efforts, there are some best practices they should consider. These include keeping tax incentives simple and building on existing federal programs like LIHTC. It’s also crucial to take steps that will increase investor interest in these programs.
One suggestion made by the article is allowing bifurcation of state tax credits from federal credits – meaning investors can claim state credits before receiving approval from Form 8609 or its equivalent – which would help offset state taxes and make investing more attractive.
The article also listed other factors that could impact investors’ decisions when it comes to new estate housing credits:
Allocation vs Certification
There are two ways for developers or participants involved with affordable housing projects can generate low-income housing tax credits: allocated or certified.
Allocated means generating equity contributions towards a project while certified involves purchasing them from others who have generated them through equity contributions.
While allocated offers potential long-term benefits and potential perks for investors, it also comes with compliance obligations and slower impacts on state revenues compared t
