Tax Credit Apartments FAQ

The federal low-income housing tax credit program has been successful since 1987 in providing low-income tenants with decent apartments at an affordable rent. If you're looking for an apartment at a tax-credit apartment, there are certain things you should know before you apply.

Here are answers to commonly asked questions about the federal low-income housing tax credit program.

Q: What's the tax credit program?

A: The tax credit program, also known as the "federal low-income housing tax credit program" or simply LIHTC, is a popular affordable housing program that has been around since 1987. Unlike most housing programs that are administered by HUD, the tax credit program is administered by the IRS, in coordination with state housing finance agencies across the country. Landlords who participate in the program get to claim tax credits for 10 years for their tax credit properties in return for renting at least some of their apartments to low-income tenants at a restricted rent.

Q: Do I get to claim a tax credit?

A: No. The tax credit program gets its name because owners of participating properties receive valuable tax credits in return for keeping their buildings affordable. As a tenant in a tax credit property, the benefit you receive comes in the form of restricted rent, assuming you're income-eligible.

Q: As part of household income, are annuities counted?

A: If you have a retirement or other annuity, there's a good chance it will need to be counted in some way as part of your household income. How a landlord should determine how to treat an annuity that you have (or that you may set up after you sign a lease for a low-income apartment at a tax credit property) depends on whether you have the right to withdraw the balance of the annuity and if you are already receiving payments.

Q: Are assets counted as income?

A: No. Assets themselves aren't counted as income, however any income that an asset produces is normally counted when determining the income-eligibility of a household.

Q: Does the landlord verify income?

A: Yes. If you're considering applying for a low-income apartment at a tax credit property, expect that the landlord or property manager will need verification of income and assets. The tax credit program specifically requires verification.

Q: How exactly is my rent calculated?

A: The rent is calculated based on the number of bedrooms in the apartment, and not the actual number of people who live there. The tax credit rent also includes a utility allowance.
The maximum rent you can be required to pay for a low-income unit in a tax credit property is 30% of a percentage (usually 50% or 60%) of area median gross income (AMGI).

Q: Does the number of people in my household affect eligibility?

A: Yes. The number of people in your household affects whether you can qualify for a low-income unit at a tax credit property. Your household must earn less than a certain percentage of area median gross income (AMGI), which is based on household size. On the other hand, the tax credit rent is not based on the actual number of people in your apartment.

Q: Will I need to sign a special lease?

A: No. The tax credit program doesn't require landlords to have tenants sign a special lease. But you may find a lease addendum with one or two clauses specific to the tax credit program. For example, you can probably expect a clause requiring you to cooperate with your landlord in recertifying and verifying your income each year, and there may be language saying that if your landlord learns that you knowingly gave false or incomplete income information when determining eligibility, this could be grounds for terminating your lease.

Q: Will there be market-rate tenants in the building?

A: There may be. Many tax credit properties include some low-income apartments and some market-rate apartments.

Q: Will I stand out as low-income if there are market-rate tenants?

A: No. Landlords are required not to segregate market-rate and low-income apartments, and no one at your tax credit property should know how much rent you pay unless you tell them.

Q: Is my income determined based on what I've made in the past year?

A: No. It's determined by looking forward and "annualizing" your income for the next year. For example, if you earn $2,000 a month at a job or through a pension and social security, this income will be counted as $24,000 (12 months x $2,000), even if it turns out you get a raise or even lose your job a month after moving into your apartment.

Q: Is the rent based on my income?

A: No. Unlike other housing programs, tax credit rent is based on the average income in your county or other local area. This average is known as the "area median gross income" (AMGI), which HUD updates each year. Your actual income matters when it comes to determining if you qualify for a low-income apartment at a tax credit property. But the actual rent you pay is not based on your income.

Q: Can I get evicted if my income goes way up after I move in?

A: You shouldn't have to worry about getting evicted for going over income. If your income rises to as high as 140% of area median gross income (AMGI), there's no problem. If your income rises above that level, it may require the landlord to take steps to make sure the building stays qualified for all its tax credits.
In the worst case, your landlord may (with proper notice) switch your apartment to market-rate and you would lose the benefit of your restricted rent. However, if your income is that high, you're really not low-income and you should be able to afford the market-rate rent. Landlords at tax credit properties can only evict tenants for "good cause" as defined by state or local laws. This also means your landlord can't decide not to renew your lease without good cause.

Q: Each time my income changes, do I need to get recertified?

A: Fortunately, no. The tax credit program doesn't have "interim recertifications," which means if you switch jobs, get a raise, or buy or sell an asset, you don't need to get your income calculated and verified again. You should expect to meet with management to recertify your income just once a year, usually around the anniversary of your lease signing.

Q: Must tax credit properties comply with discrimination laws?

A: Yes. Tax credit properties are subject to the same fair housing laws as conventional properties. Plus, thanks to an agreement between HUD, the Treasury Department, and the Justice Department (DOJ), the IRS can easily learn about a landlord's fair housing violation and use it as grounds for tax credit noncompliance. This means landlords at tax credit properties have even more reason not to discriminate against you.