Low Income Housing Tax Credits
Information/Forms Available for Download
* If you do not have Adobe Acrobat Reader (*.pdf format) software, please click here to download.
Helping to Create Affordable Housing
As part of the Tax Reform Act of 1986, the United States Congress created the Low-Income Housing Tax Credit (Section 42) to promote development of affordable rental housing for low-income individuals and families. To date, it has been the most successful rental housing production program in Nebraska, creating thousands of well-managed residences with very affordable rents. The Low-Income Housing Tax Credit, rather than a direct subsidy, encourages investments of private capital in the development of rental housing by providing a credit to offset an investor's federal income tax liability. The amount of credit a project owner may claim is directly related to the amount of qualified development costs incurred and the number of low-income units developed that meet the applicable federal requirements for both tenant income and rental rates.
The Nebraska Investment Finance Authority (NIFA) is designated as Nebraska's housing credit allocation agency. Not only is it part of NIFA's mission to finance housing for the people of Nebraska, our statutory authority enables us to provide a broad range of financial resources for agricultural, residential, manufacturing, medical and community development endeavors. We also provide technical assistance for activities related to these areas. And because NIFA is self-funding, we use no Nebraska tax dollars to accomplish our mission.
What is a Low - Income Housing Tax Credit?
A low-income housing tax credit is a dollar-for-dollar reduction or credit against an investor's federal income tax liability on ordinary income (i.e. salaries, wages, business). The credit is treated like a cash payment or as a reduction against the amount of tax owed. Only the owners or investors in a tax credit property may utilize the benefits of the tax credit over time. The use of tax credits is subject to the passive loss and alternative minimum tax provisions of the Internal Revenue Service.
Tax credits that are allocated to any project are claimed in equal amounts for a 10-year period. The rental property generating the credit must remain in compliance with the program guidelines and rent restriction requirements for a period of not less than 15 years from the first taxable year of the credit period.
The amount of tax credits available for allocation each year by NIFA is established pursuant to certain requirements of the Internal Revenue Code. Tax Credits are awarded for specific projects pursuant to NIFA's Low-Income Housing Tax Credit Program Allocation Plan. Tax Credits must be allocated by NIFA to a specific project in order for such credits to be claimed by the owner. The procedure followed by NIFA in awarding credits is described in the current Allocation Plan.
How do applicants qualify for tax credits?
In order to be considered for tax credits in the State of Nebraska, the proposed property must entail new construction, substantial rehabilitation, or acquisition and substantial rehabilitation. The minimum requirements necessary to qualify any building for substantial rehabilitation credits under the tax credit program are found in Section 42(e)(3) of the Internal Revenue Code of 1986.
For a building to be substantially rehabilitated, the expenditures during any 24-month period must be at least the greater of: (a) 10 percent of the depreciable basis of the building determined as of the first day of the 24-month period; or (b) an average of $3,000 per low-income unit.
Qualified new construction and substantial rehabilitation costs earn credits at a rate of approximately 9% (4% if tax-exempt bonds or other federal subsidies are used) each year for a 10-year period.
What is the application process?
In order for a project to be considered for tax credits, the owner must complete an application and submit it to NIFA. Application dates for 2002 are:
For complete information regarding the NIFA Low-Income Housing Tax Credit Allocation Plan, fill out a Feedback form or contact the NIFA office at (402) 434-3900 or 1-800-204-NIFA (6432). Click here to download application forms.
Low-income housing tax credits are a proven and acceptable tool for financing affordable rental units. NIFA would be delighted to work with you to see if tax credits are appropriate in your community.
What are eligible projects?
To be considered an eligible project, a development must include a minimum percentage of units (20% or 40%) to be set aside for eligible low-income tenants. The rent charged on these set-aside units is restricted so that the gross rent, with respect to such units, does not exceed 30 percent of the imputed income of the proposed occupant of the unit. Code citings pertaining to rent restrictions can be found in Section 42(g)(2) in the Internal Revenue Code.
Pursuant to Section 42(g)(1) of the Code, a qualified low-income project means any project for residential rental occupancy if it meets the requirement of either:
* The median income tables are established and adjusted annually by the appropriate
Since tax credits are awarded on a competitive basis, NIFA's Allocation Plan encourages "targeting" of the units to income levels lower than the federal limits described above.
Tax credits may only be claimed on units that have been set aside for participation under the program. Because of the significant benefit of the tax credit, it is common for project owners to set aside 100 percent of the units for qualification under the tax credit program. In doing so, owners or investors can claim the maximum amount of tax credits eligible for the development.
FAQ'sMOST COMMONLY ASKED QUESTIONS PERTAINING TO THE TAX CREDIT PROGRAM
The following represent a sampling of common questions asked of NIFA concerning the tax credit program. When possible, NIFA will provide specific Code citings as a supplement to the answers provided. NIFA will not provide any opinions concerning the Code and its relationship to any particular real estate transaction, such opinions should be sought from qualified third party sources.