The low-income housing tax credit program is the federal government policy as a tool for encouraging the development and rehabilitation of affordable rental housing. The program awards developers federal tax credits to offset construction. The costs in exchange for agreeing to reserve a certain fraction of units that are rent-restricted and for lower-income households. The credits may be claimed over a 10-year period. The fact, developers need upfront financing to complete construction so they will usually sell their tax credits to outside investors.  In the year 2018 Consolidated Appropriations Act has made two changes to the program. The act increased the number of credits available to states each year by 12.5% for the years 2018 through 2021. Another change is in the active income test which determines the maximum income of tenant may have. Recently, this to assist some affected areas of California  by natural disasters in 2017 and 2018 and the Further this  Act, 2020  increased California’s 2020  allocation by the lesser of the state’s 2020  allocations to buildings located in qualified 2017 and 2018 California disaster areas, or 50% of the state’s combined 2017 and 2018 total LIHTC allocations.

There are two types of The low-income housing tax credit (LIHTC)s available to developers. The so-called 9% credit is generally reserved for new construction and is intended to deliver up to a 70% subsidy. The so-called 4% credit is typically used for rehabilitation projects utilizing at least 50% in federally tax-exempt bond financing and is designed to deliver up to a 30% subsidy. This report will also refer to the 4% credit as the “rehabilitation tax credit” and the 9% credit as the “new construction tax credit” to facilitate the discussion.2 The 30% and 70% subsidy levels are computed as the present value of the 10-year stream of tax credits divided by the development’s qualified basis (roughly the cost of construction excluding land).3 It is the subsidy levels (30% or 70%) and not the credit rates (4% or 9%) that are explicitly specified in the Internal Revenue Code (IRC).4 The U.S. Department of the Treasury uses a formula to determine each month the credit rates that will produce the 30% and 70% subsidies. The formula depends on three factors: the credit period length, the desired subsidy level, and the current interest rate. The credit period length and the subsidy levels are fixed in the formula by law, while the interest rate changes over time according to market conditions. Given the current interest rate, the Treasury’s formula determines the LIHTC rate that delivers the desired subsidy level.