The Low-Income Housing Tax Credit (LIHTC) program and the Low-Income Communities Bonus Credit Program are both federal tax incentive programs designed to benefit low-income communities, but they serve different purposes and operate under different frameworks.
Overview of Programs
Low-Income Housing Tax Credit (LIHTC) Program
- Purpose: This federal program was established under the Tax Reform Act of 1986 to encourage private sector investment in affordable rental housing for low-income families. It provides tax credits to developers who build or rehabilitate affordable housing units.
- Target: Developers, property owners, and investors are eligible to participate if they agree to reserve a certain percentage of units for low-income tenants. Typically, units must be priced so that tenants pay no more than 30% of their income on rent.
- Types of Credits: There are two primary types of LIHTC credits: 4% and 9%. The 9% credit is used without additional subsidies, while the 4% credit can be used with tax-exempt bond financing.
- Duration: Housing projects must maintain affordability for at least 15 years, although there are options to opt out under specific conditions after this period.
Low-Income Communities Bonus Credit Program
- Purpose: As part of the Inflation Reduction Act, this program aims to incentivize clean energy projects in low-income communities by providing an additional tax bonus on top of existing credits. It encourages the development of renewable energy in disadvantaged areas.
- Target: This program targets developers of renewable energy projects, specifically wind and solar, located in low-income communities. The program requires projects to share financial benefits with the host community.
- Types of Credits: The bonus credit offers an additional 10% or 20% tax incentive on top of the base investment tax credit for renewable energy projects.
- Duration: The program is limited by available funding, and applications are competitively scored, with successful projects receiving a bonus credit for the duration of their renewable energy production incentives.
Key Differences
- Focus: LIHTC focuses on developing affordable housing, while the Low-Income Communities Bonus Credit Program focuses on promoting renewable energy projects in low-income areas.
- Eligibility: LIHTC is open to housing developers and property owners, whereas the Low-Income Communities Bonus Credit Program targets renewable energy developers.
- Incentive Structure: LIHTC provides a direct dollar-for-dollar tax credit reduction for housing projects, while the Low-Income Communities Bonus Credit offers a percentage-based bonus on existing renewable energy credits.
Both programs leverage tax incentives to drive investment in low-income communities but address different sectors—housing and renewable energy—and have distinct eligibility and structural requirements.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-does-the-low-income-housing-tax-credit-lihtc-program-differ-from-the-low-income-communities-bonus-credit-program/
