LIHTC Properties: What Tenants Need to Know
The Low-Income Housing Tax Credit (LIHTC) program is the largest source of affordable rental housing production in the United States, funding construction or rehabilitation of over 3.5 million units since its creation under the Tax Reform Act of 1986 (Internal Revenue Service, IRC §42). Tenants living in or applying to LIHTC properties operate under a distinct set of income, rent, and occupancy rules that differ materially from market-rate or other subsidized housing programs. This page explains how LIHTC properties work, what restrictions apply to tenants, how this program compares to other affordable housing options, and where the boundaries of tenant rights and landlord obligations lie.
Definition and scope
LIHTC — pronounced "lie-tech" — is a federal tax credit administered by the Internal Revenue Service (IRS) and allocated to states through their housing finance agencies (HFAs). Developers receive tax credits in exchange for keeping a defined share of units affordable for a minimum of 30 years, though the extended-use period is typically 15 years under the initial compliance period plus a 15-year extended-use agreement.
Two primary election thresholds govern which units qualify (IRC §42(g)):
- The 20/50 test: At least 20% of units are occupied by households earning 50% or less of Area Median Income (AMI).
- The 40/60 test: At least 40% of units are occupied by households earning 60% or less of AMI.
Most projects elect the 40/60 threshold. Some states use additional income tiers (e.g., 30%, 50%, or 80% AMI) under the "income averaging" option introduced by the Consolidated Appropriations Act of 2018.
The IRS publishes AMI figures annually through the U.S. Department of Housing and Urban Development (HUD). These figures vary by household size and metropolitan statistical area, which means the income ceiling for a 3-person household in San Francisco differs substantially from one in rural Alabama.
LIHTC properties are distinct from Section 8 voucher housing and public housing. Unlike Housing Choice Vouchers, LIHTC is a place-based subsidy attached to the unit, not the household.
How it works
Understanding the operational structure of LIHTC helps tenants anticipate what documentation they must provide and why.
Phase 1 — Tax credit allocation
State HFAs score developer applications using Qualified Allocation Plans (QAPs). Credits are awarded competitively, and the allocation amount is tied to the number of qualified low-income units.
Phase 2 — Development and placed-in-service date
Once a project is built or rehabilitated and receives a certificate of occupancy, it enters a compliance period monitored by the IRS and the state HFA.
Phase 3 — Tenant certification
At move-in, tenants must certify household income. The property owner collects documentation — pay stubs, tax returns, asset statements — and completes a Tenant Income Certification (TIC) form. Households earning above the applicable AMI threshold are not eligible for designated LIHTC units.
Phase 4 — Annual recertification
Most LIHTC properties require annual income recertification. If a household's income rises above 140% of the applicable AMI limit (the "over-income" rule under IRC §42(g)(2)(D)), the next available comparable unit must be rented to an income-qualifying household — but the existing over-income tenant is not automatically required to vacate.
Phase 5 — Rent limits
Maximum gross rents are calculated as 30% of the applicable AMI percentage, adjusted for unit size by HUD utility allowances. A tenant in a 60% AMI unit pays no more than 30% × 60% AMI ÷ 12 months. Rent limits are updated annually when HUD releases new income limits.
Tenants in LIHTC properties retain standard lease protections outlined in the lease agreement tenant guide and are also subject to federal fair housing tenant protections.
Common scenarios
Scenario 1 — Income increases mid-tenancy
A household certified at 55% AMI receives a promotion, pushing income to 75% AMI. Under the 140% rule, the property owner must wait until income exceeds 140% of the qualifying limit before the next-available-unit rule is triggered. Even then, eviction solely on income grounds is not automatic and must comply with applicable eviction process rules.
Scenario 2 — Mixed-income properties
Some LIHTC developments contain both restricted and market-rate units in the same building. Tenants in market-rate units at the same address are not subject to income certification and pay rents set by the owner. Tenants should confirm in writing whether their specific unit is a "tax credit unit" before signing.
Scenario 3 — Ownership transfer or year-15 expiration
After the 15-year initial compliance period, an owner may exit the program by offering to sell the property to a nonprofit or tenant organization. The National Housing Law Project and HUD have published guidance on tenant notification rights in these transitions. Tenants should consult rental assistance programs and tenant advocacy organizations if a property approaches this threshold.
Scenario 4 — Household composition changes
Adding a household member (e.g., a new child or returning family member) triggers an interim recertification. If the revised household size would push the unit into a different AMI category, the property manager must reassess eligibility. Larger households also receive higher AMI thresholds, which may actually improve qualification standing.
Decision boundaries
Several classification thresholds determine whether a tenant is eligible, compliant, or subject to corrective action.
| Situation | Governing rule | Source |
|---|---|---|
| Household income at or below AMI limit | Eligible for LIHTC unit | IRC §42(g) |
| Gross rent exceeds 30% of applicable AMI | Rent cap violation by owner | HUD income limits, IRC §42 |
| Income rises above 140% of AMI limit | Next-available unit rule triggered | IRC §42(g)(2)(D) |
| Property exits compliance period | State HFA extended-use agreement governs | IRS Form 8823 guidance |
LIHTC vs. Section 8 vouchers
LIHTC restricts the unit; Section 8 restricts the tenant's payment. A household with a Section 8 voucher may rent a LIHTC unit if the unit's rent does not exceed the applicable payment standard. Dual-subsidy units exist but require both HUD and IRS compliance simultaneously.
LIHTC vs. other subsidized housing
Among subsidized housing programs, LIHTC imposes the strictest documentation requirements at intake but does not provide a rental subsidy to the tenant — the subsidy goes to the developer as a tax credit. This means tenants pay their own rent (at a capped rate) rather than receiving a voucher-based payment. The source of income discrimination rules relevant to voucher holders generally do not apply to LIHTC tenants, since no voucher is involved.
Tenants who believe an LIHTC property is violating rent caps or occupancy rules can file complaints with the state HFA or the IRS using Form 8823, the noncompliance reporting form. Housing discrimination complaints remain available under the Fair Housing Act regardless of LIHTC status.
References
- Internal Revenue Service — Low-Income Housing Credit (IRC §42)
- IRS Form 8823 — Low-Income Housing Credit Agencies Report of Noncompliance
- HUD — Income Limits Documentation System
- HUD USER — LIHTC Database and Program Overview
- National Housing Law Project — Year 15 and Beyond
- U.S. Code, Title 26, §42 — Low-Income Housing Credit (via Cornell LII)
- IRS Revenue Ruling 2004-82 — Income Averaging Election Guidance