Low Income Housing Tax Credits (LIHTCs, 4% & 9%)
The LIHTC Program is a federal tax credit program that is administered at the discretion of the state housing finance agency under its Qualified Allocation Plan (“QAP”). The program creates an incentive for private developers to participate in affordable rental housing by awarding dollar-for-dollar tax credits to qualified projects. These tax credits are sold by developers to investors, generating equity for their developments. This equity injection allows the developer to offer “affordable” rents to residents.
LIHTC credits are either acquired through an annual competitive process (resulting in tax credits equal to 9% of a development’s eligible basis) or through the non-competitive process (resulting in tax credits equal to 4% of a development’s eligible basis). Projects seeking 4% credits may be financed using tax-exempt bonds, whereas 9% credit projects may not. A development’s eligible basis is calculated as the cost of acquiring the improved structure plus construction costs. Finance costs and land costs are not included in calculating a project’s eligible basis. The credits are divided and distributed equally over a ten year period.
In May 2020, the State of South Carolina enacted legislation authorizing a South Carolina Low Income Housing Tax Credit. The State LIHTC will be calculated using federal low-income housing tax credit rules and requirements and will be equal in amount to the federal credit. Rent and tenant eligibility also parallel the federal requirements, as do the recapture rules. The South Carolina Low Income Housing Tax Credit will be administered primarily by the South Carolina State Housing Finance and Development Authority, and will be allocated to both 9% competitive credit projects and tax-exempt bond-financed projects.
Howell Linkous & Nettles attorneys have participated in the LIHTC program for decades. We represent non-profit developers, private developers, and housing authorities, as well as investors, lenders and syndicators through application preparation, partnership agreement creation, and through shepherding the development in all stages of acquisition, syndication, compliance, and disposition.