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Tax Reform Act of
1986
Section 42 of
the Tax Reform Act of 1986 provides for a real estate
tax credit incentive that is to be allocated to each
state who will award these Low Income Housing Tax
Credits (LIHTC) to developers in a competitive bidding
process to encourage them to build housing for low
income Americans.
The Low Income
Housing Tax Credits (LIHTC) are awarded as a percentage
of the cost of acquiring, constructing and/or rehabbing
low income rental housing.
In return for
these real estate tax credits developers agree to rent
out a certain percentage of available rental units to
individuals whose
income is under a set out level. Maximum lease rates are calculated as a percentage of
area median income as set out by HUD.
The Low Income
Housing Tax Credits are allocated over a ten year period
and the project must comply with lease rate restrictions
and tenant income requirements for 15 years.
Developers
syndicate these real estate tax credits by forming
Limited Partnerships or Limited Liability Companies
(LLC). The Developer acts as the general partner or
managing member. Investors become limited partners
or LLC members by contributing the project's equity
capital in return for the tax credits. Project net
profits are split between the developer and limited
partners/LLC members as predetermined by the Project
Operating Agreement.
The real
estate tax credits are subject to recapture after
disposition of the project. |
Features of the
LIHTC*
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High
income individuals, married couples & corporations
receive a dollar for dollar reduction in tax
liability with the LIHTC.
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Developers obtain equity capital necessary to build
or rehab low income multi-family housing.
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Real Estate tax credit is spread equally over 10
year period.
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Rental
rates as calculated as a percentage of local median
income and tenants must qualify as low income at
levels set out by HUD.
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Rental
rate restrictions & income caps must be complied
with for 15 years.
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Developers may share net profits from operations or
capital gains as negotiated & pre-agreed in the
project's operating agreement.
How can I
participate?
RealEstateTaxCredits.com's mission is to bring high
income accredited investors together with financial
planners & advisors who sell low income housing tax
credit partnerships.
*Since the
Federal Tax Code is very complex, high income
individuals or corporations should always consult their
accountant to determine if real estate tax credits
earned by investing in low income housing projects are
something that can or should be included in their tax
planning. |