Community Development & LIHTC
Building equity, one brick at a time.
Our team of principals and advisers has been involved in the Low Income Housing Tax Credit (LIHTC) program since its inception in 1986. Additionally, Stateside Capital maintains strong relationships with recognized experts in the acquisition and administration of quality housing tax credits. Stateside Capital has created private label, institutional and individual funds, offering eleven funds totaling more than $229 million in tax credits – creating much-needed equity for the development of 6344 affordable housing units and offering investors the benefit of long term state income tax reduction.
About Low Income Housing Tax Credits (LIHTC)
The Low Income Housing Tax Credit, LIHTC, is a tax credit created under the Tax Reform Act of 1986 (TRA86) that gives incentives for the utilization of private equity in the development of affordable housing aimed at low-income Americans. The tax credits are often more attractive than tax deductions as they provide a dollar-for-dollar reduction in a taxpayer’s federal income tax, whereas a tax deduction only provides a reduction in taxable income. The LIHTC provides funding for the development costs of low-income housing by allowing a taxpayer (usually the partners of a partnership that owns the housing) to take a federal tax credit equal to a large percentage of the cost incurred for development of the low-income units in a rental housing project. Development capital is raised by “syndicating” the credit to an investor or, more commonly, a group of investors. To take advantage of the LIHTC, a developer will typically propose a project to a state agency, seek and win a competitive allocation of tax credits, complete the project, certify its cost, and rent-up the project to low income tenants. Simultaneously, an investor will be found that will make a “capital contribution” to the partnership or limited liability company that owns the project in exchange for being “allocated” the entity’s LIHTCs over a ten year period. The amount of the credit will be based on (i) the amount of credits awarded to the project in the competition, (ii) the actual cost of the project, (iii) the tax credit rate announced by the IRS, and (iv) the percentage of the project’s units that are rented to low income tenants. Failure to comply with the applicable rules, or a sale of the project or an ownership interest before the end of at least a 15-year period, can lead to recapture of credits previously taken, as well as the inability to take future credits. To qualify as LIHTC:
- At least 20% or more of the residential units in the development are both rent restricted and occupied by individuals whose income is 50% or less of the area median gross income.
- At least 40% or more of the residential units in the development are both rent restricted and occupied by individuals whose income is 60% or less of the area median gross income.