Back to Basics: Low-Income Housing Tax Credits

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What the heck is a “Lie Tech” project?

The Low-Income Housing Tax Credit (LIHTC) program is the cornerstone of affordable rental housing in Virginia and the United States today. Nevertheless, its complicated design and seemingly endless stream of jargon continue to perplex many practitioners, policymakers, and advocates.

In this edition of Back to Basics, we take our best shot at breaking down LIHTC (often pronounced “lie-tech”). These are the most important things you need to know about its role as Virginia’s primary engine for producing new affordable housing.

How it started

Housing advocates in the early 1980s were on the defensive. After racking up major wins to grow federal support for housing and community development in the ‘60s and ‘70s—including Section 8 subsidies, CDBG funds, and major expansions of public housing—the vibe had shifted dramatically.

Ronald Reagan’s landslide election in 1980 brought significant momentum to deregulate markets and reduce federal spending across the board. Eschewing the traditional direct subsidy approach, the new administration pursued massive cuts to longstanding housing programs, and began efforts to instead use tax incentives for private investment in affordable housing development.

After several unproductive attempts, lawmakers in Congress went back to the drawing board to find a solution that would actually stick. They also invited some familiar faces to lend a hand—including NLIHC, Enterprise, and LISC. While these organizations never backed away from advocating for direct subsidies, they simultaneously endorsed a new affordable housing tax credit program designed with their direct input.

Adopted into law as part of the Tax Reform Act of 1986, that proposal marked the beginning of a new era for affordable housing. Today, we still know it as the Low-Income Housing Tax Credit.

How it works

The LIHTC program allocates federal tax credits to state housing finance agencies—in our case, Virginia Housing—which then award these credits to private developers through a competitive process. Developers sell these credits to private investors to raise equity for their projects, reducing the debt they need to take on, which enables them to offer lower rents.

Two types of tax credit

LIHTC comes in two “flavors.” Each refers to the share (percentage) of a project’s cost that investors can use to lower their tax liability.

  1. 9% Tax Credit: This credit covers approximately 70% of the project costs for new construction without federal subsidies. It is highly competitive and typically awarded to projects that can demonstrate the greatest need and impact.
  2. 4% Tax Credit: This credit covers about 30% of project costs and is generally used for rehabilitation projects or new construction with additional federal subsidies. Projects automatically get 4% credits if they secure Private Activity Bonds for at least half of their funding.

How are projects funded?

Unlike most other federal housing programs, LIHTC is not administered by HUD. Instead, the IRS divides the total national credit amount set by Congress to each state according to a population-based formula. State housing agencies receive a LIHTC volume cap, establish guidelines for how their credits will be awarded, review applications, allocate credits, and monitor compliance.

One important role state housing agencies play is maintaining their Qualified Allocation Plan (QAP). QAPs build on the program’s broad federal guidelines to define a state’s specific priorities and preferences for projects using LIHTC. Virginia Housing has their current QAP, and a companion Tax Credit Manual, available to view on their website.

An important element of Virginia Housing’s QAP is the use of multiple pools to effectively distribute 9% credits across different regions and by different project types. Applications fall into one pool by default, but can be moved to compete in other applicable pools if they don’t score high enough at first.

Agencies regularly update QAPs with stakeholder input, in response to changing housing needs, market conditions, and construction innovations. In fact, this month Virginia Housing released proposed modifications (PDF) to the 2025 QAP for public comment.

Who uses the credits?

Any type of developer can use LIHTC credits to build or preserve affordable housing.

  • Private developers often use LIHTC to finance large-scale multifamily housing projects, benefiting from the equity raised through the sale of credits to private investors.
  • Nonprofit developers generally focus on projects that create and preserve affordable housing in underserved areas, and usually leverage LIHTC with other public funding to ensure long-term affordability.
  • Housing authorities can use LIHTC to rehabilitate and modernize public housing, often partnering with private developers and investors to maximize resources.

Who gets the tax benefits?

Because LIHTC credits are commonly used by developers with no federal tax liability—i.e., nonprofits—investors who stand to benefit from the credit must be connected to projects. This can happen directly (where investors are development partners), or indirectly through syndication (where intermediary agencies like VCDC manage investment funds for one or multiple projects).

Banks, for example, are common investors because they can receive valuable Community Reinvestment Act (CRA) credits for certain projects. Private corporations can also invest to offset their tax liabilities. Credits reduce investors’ income taxes for 10 years.


Many factors influence the monthly rents in LIHTC projects, especially if projects receive supplemental assistance from other housing programs. However, Virginia’s QAP sets these three options as minimum requirements:

  • At least 20% of units must be affordable to households at or below 50% AMI; OR,
  • At least 40% of units must be affordable to households at or below 60% AMI; OR,
  • Units may be affordable to households between 20% AMI and 80% AMI (set in 10% increments) as long as the overall average income limit is 60% AMI or below.

These schemes are better known as 20/50, 40/60, and Income Averaging, respectively. In all cases, the affordability term for LIHTC projects in Virginia is 30 years.

How it’s going


LIHTC is without question the largest contributor to the supply of dedicated affordable housing in America today, and has been for decades now. Its benefits include:

  • Supporting more than 115,000 active affordable units in Virginia today, which might now exceed the total number of Housing Choice Vouchers and all affordable rental units supported by Section 8, Public Housing, USDA, and other federal programs.
  • The ability to serve both new construction and rehabilitation projects, along with dedicated set-aside units for seniors and persons with supportive housing needs.
  • The flexibility to be combined with Private Activity Bonds, housing trust funds, rental assistance, and other funding streams.
  • A strong, dedicated industry of private developers, nonprofit developers, syndicators, and investors.
  • Widespread bipartisan support at the federal level.


However, LIHTC is not without its own problems. Current challenges include:

  • Lack of credits to serve all eligible projects that apply. From 2019 to 2023, Virginia Housing awarded credits to 128 applications, but another 89 were left unfunded.
  • Limited ability to support projects outside of the traditional multifamily rental arrangement, such as mobile home parks, community land trusts, and other important solutions in our affordable housing spectrum.
  • The need to “re-up” credits expiring after their initial 30 years. Usually, mission-oriented owners can successfully preserve these units—but preservation needs continue to grow.
  • High overhead costs compared to other forms of housing assistance. 

So what does the future hold for LIHTC? Perhaps we’ll see its little brother, Virginia’s Housing Opportunity Tax Credit, grow into a formidable resource that further leverages federal credits. We eventually might also see Congress take significant steps to expand and improve LIHTC, as currently proposed. Either way, we don’t think it’s heading anywhere anytime soon.

Additional resources:

Rental Housing Tax Credits (Virginia Housing)

LIHTC Program Fact Sheet (HB854 Statewide Housing Study)

About the LIHTC (Novogradac)

Housing Credit Program FAQs (National Council of State Housing Agencies)

LIHTC: The Good, the Bad, and the Very Complicated (Shelterforce)

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