affordable housing construction tax credits

Low Incoming Housing Tax Credits: What Are They and How Do They Work?

June 4th, 2025 | Tax | Tax Credits | Affordable Housing
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By Tyler Harris, Tax Associate In the ever-evolving industry of affordable housing, builders and developers must capitalize on every available tax credit. The Low-Income House Tax Credit program can help organizations earn credits while providing more affordable homes in Michigan communities. 

What is the Low-Income Housing Tax Credit Program?  

The Low-Income Housing Tax Credit (LIHTC) is a program that helps finance the construction and rehabilitation of rental housing specifically for low-income individuals and families. The program provides a dollar-for-dollar credit reduction on federal tax liability for investors.   

What are the Available Forms of LIHTC?  

There are two forms of this credit: a 9% credit and a 4% credit. The 4% credit is typically used for acquiring an existing property and rehabilitating it, using funding secured by tax-exempt bonds. The 9% is generally reserved for new construction for buildings and has higher competition between developers to obtain.  

How Does the LIHTC Credit Work?  

The credits from LIHTC are dispersed over a 15-year period. However, the LIHTC can be taken at an accelerated rate over 10 years, with a recapture or “compliance” period of 15 years, starting from the first year the credit is taken. This typically occurs in the first year or the year following when the building assets are placed in service.    During this time, the property must stay in compliance with the rules set forth by the state Housing Development Authority. All entities that hold the property and receive the credits are required to obtain an annual audit from a certified public accountant (CPA).   

What are the Minimums for Compliance?  

To qualify for LIHTC, a minimum number of affordable units within the project must be set aside, ensuring the property remains in compliance with the program’s requirements. The ratio can vary by project.  
  • The 20/50 minimum requires that 20% of the units be reserved for individuals or families with an annual income equal to or less than 50% of the area’s median income.   
  • The 40/60 minimum set-aside requires 40% of the units to be reserved for individuals or families that have an income that does not exceed 60% of the area’s median income.  
With either option, rent for the affordable units will need to be restricted. If the project fails to set aside the correct number of minimum units required by the state Housing Development Authority within one or more years of the 15-year compliance period, a portion of the credits taken will be subject to recapture, and future credits may be disallowed.  

How Can You Apply for the LIHTC Credit?  

Builders and developers must apply to receive Low-Income Housing Tax Credits. Applications for the 9% LIHTC credit are submitted during rounds of funding established by the state. For example, the previous round of funding in Michigan began January 31, 2025, and ended April 1, 2025.   As of June 1, 2025, there is no active round of funding to submit applications for the 9% LIHTC credits. However, you can apply for the 4% LIHTC credits on a year-round basis. The application portal is listed on the state’s website. For Michigan developers, you can access the link and the portal here.   

Learn More About the Low-Income House Tax Credit Program with Maner Costerisan  

At Maner Costerisan, our affordable housing team understands not just the LIHTC program but the building and development of low-income housing to a deep level. We have strong ties with regulatory bodies, management companies, and developers to help you understand the financial and compliance aspects of affordable housing projects. To learn more, reach out to maner@manercpa.com.