Developers seeking an allocation of federal Low-Income Housing Tax Credits must submit an application for each rental property to be considered during the single competitive annual cycle. To be eligible for the tax credits, owners agree to keep rents affordable for a period between 15 and 30 years for families and individuals with incomes at or below 80% of the local median income.
The owners are eligible to take a tax credit equal to approximately 9% of the “Qualified Cost” of building or rehabilitating the property (excluding land and certain other expenses). The tax credit is available each year for 10 years, as long as the property continues to operate in compliance with program regulations.
Owners are able to lower the amount of the property’s debt financing by exchanging the tax credits for equity investments from major financial institutions. (See Anatomy of a Low-Income Housing Tax Credit Development.)
This lowers the operating costs and makes it economically feasible to operate the property at below-market rents. For an example, view Affordability of a Low-Income Housing Tax Credit Property vs. Equivalent Market Rate. Residents are responsible for their own rent payments, unless rent subsidies are available from other programs.
Competition for Housing Credits is intense, with only one of four proposals receiving credits annually. Selection criteria include:
- Project location and site suitability.
- Market demand and local housing needs.
- Ability to serve the lowest-income tenants.
- Ability to serve qualified tenants for the longest periods.
- Design and quality of construction.
- Financial structure and long-term viability.
- Experience of development team and management agent(s).
- Ability to serve persons with disabilities and the homeless.
- Projects that are part of a Community Revitalization Plan.
The experience of a team in developing a project using Housing Credits is very important. If you are a new developer and have never qualified for Housing Credits in North Carolina or any other state, you will need to partner with a developer who has done so successfully.
Your development may also be eligible for loans from the Workforce Housing Loan Program and the Rental Production Program—you do not complete a separate application for these funds but request them as part of your Housing Credit application.