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, financing more than 3 million housing units since its creation under the Tax Reform Act of 1986 (IRS, IRC §42). Tenants living in or applying for LIHTC-assisted units operate under a specific set of eligibility rules, rent restrictions, and compliance requirements that differ substantially from both market-rate rentals and other federal housing assistance programs. This reference describes how the program is structured from the tenant perspective, what income and rent limits apply, and where the boundaries lie between LIHTC tenancy and other housing subsidy types. Professionals using the Tenant Services Providers will encounter LIHTC-designated properties across nearly every metropolitan and rural housing market in the country.

Definition and scope

LIHTC is a federal tax credit program administered by the Internal Revenue Service (IRS) under Internal Revenue Code Section 42. States receive annual credit allocations based on population — set at $2.75 per capita or $3,185,000 per state minimum as of 2023 allocation figures (IRS Revenue Procedure 2022-38) — and distribute them through their designated housing finance agencies (HFAs). These agencies, such as the California Tax Credit Allocation Committee (CTCAC) or the Texas Department of Housing and Community Affairs (TDHCA), each publish a Qualified Allocation Plan (QAP) that governs which developments receive credits.

The credit is claimed by investors, not tenants. Developers syndicate the tax credits to equity investors, who fund construction or rehabilitation in exchange for 10 years of federal tax credits. In return, the property owner must maintain affordable rents and income-restricted occupancy for a minimum compliance period — typically 30 years under state QAP requirements, though the statutory minimum under IRC §42 is 15 years with an extended-use period of an additional 15 years.

From the tenant perspective, LIHTC designation means two things: (1) rents are capped relative to Area Median Income (AMI), and (2) only households below specific income thresholds qualify to occupy the units. The program does not provide direct rental assistance to tenants — it reduces the rent a landlord is permitted to charge.

How it works

LIHTC units are restricted to households earning at or below specific percentages of AMI, typically 50% or 60% AMI, as established by the U.S. Department of Housing and Urban Development (HUD) and published annually in HUD's Income Limits dataset (HUD Income Limits).

Rent calculation structure:

The IRS oversees credit compliance at the federal level; state HFAs act as the primary monitoring agents. The IRS Form 8823 is used by HFAs to report noncompliance to the IRS (IRS Form 8823 Guide).

Common scenarios

Scenario 1 — Household income exceeds limits at recertification. Under the "next available unit" rule in IRC §42(g)(2)(D), if a tenant's income rises above 140% of the applicable income limit during tenancy, the next comparable available unit in the same building must be rented to a qualifying household. The over-income tenant may remain in place but cannot be replaced by another over-income household until this condition is met.

Scenario 2 — Mixed-income LIHTC development. Not all units in an LIHTC building are necessarily income-restricted. Developments may have a combination of LIHTC-restricted units and market-rate units within the same structure. Tenants should confirm, through the lease or the property's regulatory agreement on file with the state HFA, which specific units carry income and rent restrictions.

Scenario 3 — Section 8 voucher holder in an LIHTC property. LIHTC units are compatible with Housing Choice Vouchers (HCV), administered by local public housing authorities (PHAs) under HUD regulations at 24 C.F.R. Part 982. When a voucher is used in an LIHTC unit, the rent is the lower of the LIHTC rent ceiling, the payment standard, or the rent reasonableness determination. This layering of subsidy types is common and requires coordination between the PHA and the property owner.

Scenario 4 — Property exits compliance period. After the extended-use period, some restrictions may lapse unless the state QAP imposes longer requirements or a preservation covenant exists. Tenants in properties approaching compliance expiration should monitor notices from the property owner or state HFA, as rent and occupancy restrictions may change.

Decision boundaries

Understanding what LIHTC is not helps clarify tenant rights and protections within the program. The table below distinguishes LIHTC from adjacent program types:

Tenants seeking assistance navigating LIHTC occupancy requirements can review the Tenant Services Provider Network Purpose and Scope for context on how housing service categories are organized within this reference. The LIHTC program does not provide emergency rental assistance, eviction protection beyond standard state landlord-tenant law, or relocation rights in excess of those required by applicable state statute. Eviction proceedings in LIHTC properties follow standard state civil procedure, though lease terms and the property's regulatory agreement may impose additional owner obligations.

Fair housing requirements under the Fair Housing Act (42 U.S.C. §§3601–3619) apply fully to LIHTC properties. Owners may not use income restrictions as a pretext to apply selection criteria in a discriminatory manner. HUD's Office of Fair Housing and Equal Opportunity (FHEO) handles complaints at the federal level; state civil rights agencies hold concurrent jurisdiction in most states.

Professionals and researchers working across housing assistance types can consult the How to Use This Tenant Services Resource page for navigation guidance across subsidy program types covered in this reference.