3.4 Low-Income Housing Tax Credit Program

The Low-Income Housing Tax Credit program (LIHTC) was created to provide the private market with an incentive to invest in affordable rental housing. Federal housing tax credits are awarded to developers of qualified projects (the “general partner”). Developers then sell these credits to investors (the “limited partner”) to raise capital for their projects, thereby reducing the debt that the developer would otherwise have to assume in order to finance the project. Because the debt is lower, a tax credit property can in turn offer lower, more affordable rents. If the property maintains compliance with program requirements, investors receive a dollar-for-dollar credit against their federal tax liability each year over a period of 10 years. The developer must generally agree to rent at least 20% of the units to families with incomes at or below 50% of area median income or 40% of the units to families with incomes at or below 60% of area median income for a period of at least 30 years. The LIHTC program is governed by 26 U.S.C. § 42.

The second 15 years of the 30 year-affordability period is called the “extended use period.” LIHTC properties must continue their affordability commitment through the “extended use period” unless (1) the property is foreclosed on, or (2) the property applies to the state housing finance agency for a “Qualified Contract” and the state is unable to obtain a buyer for the low-income portion of the building.1  However, at the time of this writing the Louisiana Housing Corporation requires all LIHTC applicants to waive their right to seek a Qualified Contract after 15 years, so most LIHTC properties will have a minimum 30-year commitment.

Many tax credit deals involve a non-profit developer as the general partner. Under the governing statute, after the affordability period expires, the non-profit general partner holds a contractual right of first refusal to purchase the building from the investor at a minimal cost in order to keep the property affordable.2

Louisiana Housing Corporation (LHC) is the Louisiana state housing finance agency that administers the LIHTC program. LIHTC units are rent-restricted, but the rent is not income-based like in many HUD subsidy programs. A tenant will need a secondary subsidy, like a Permanent Supportive Housing subsidy or a Section 8 voucher, to restrict rent based on the tenant’s income. Owners who participate in the program cannot refuse to provide housing to Section 8 voucher holders merely because of their status as voucher holders.3  For a list of LIHTC properties in your area, check the HUD website.4

The LIHTC statute requires good cause for lease termination, and courts across the country have held that good cause is required for lease termination or non-renewal of a LIHTC lease.5  The IRS issued a formal ruling requiring all owners of LIHTC properties to place good cause eviction requirements in the recorded property restrictions.6  In 2021, LHC adopted a lease addendum that explicitly requires good cause for eviction from Louisiana LIHTC properties, in line with its regulatory agreement and the federal statute. LHC also adopted a criminal records screening policy that substantially limits the types of criminal records for which a tenant can be denied admission to a LIHTC property.7

There is a full-time adult student exclusion in the LIHTC program that may negatively impact some low-income clients. The student exclusion does not apply to adult students who receive social security benefits, who are enrolled in certain job training programs, or are single parents.8  Advocacy issues arise with the full-time student exclusion when there is a dual subsidy on the unit, for example a public housing subsidy and a LIHTC subsidy. HUD has issued guidance making it clear that a HUD-subsidized tenant may only be terminated for reasons permissible under HUD rules. So, a HUD tenancy may not be terminated just because the tenant is a full-time student in violation of LIHTC rules.9  In other words, where HUD rules are less restrictive than LIHTC rules, the HUD rules apply.

The National Housing Law Project has building a useful guide to tenants’ rights in LIHTC properties.10

• 126 U.S.C. § 42(h)(6)(E).
• 226 U.S.C. § 42(i)(7).
• 326 C.F.R. § 42-5(c)(1)(xi).
• 4LIHTC Database Access.
• 5The requirement is based on 26 U.S.C. § 42(h)(6)(E)(ii). The requirement is also in the Louisiana Housing Corporation’s tax credit regulatory agreement recorded against each LIHTC property. See Mendoza v. Frenchman Hill Apts. Ltd. P’ship, 2005 U.S. Dist. LEXIS 47373, at 11, 2005 WL 6581642 (E.D. Wash. Jan. 20, 2005) (“[T]plain language of the statute supports the Plaintiffs’ contention that the good cause requirement shall be in effect for the entirety of the low-income housing commitment.”); V.I. Cmty. Hous., L.P. v. Rivera, 50 V.I. 179, 187 (V.I. Super. Ct. 2008) (“[U]nder the LIHTC regulations, [tenant] is entitled to protection and should not be evicted at the expiration of her lease, absent good cause.”); Carter v. Md. Mgmt. Co., 835 A.2d 158, 168–69 (Md. 2003) (“[W]hatever term may be stated in the lease, a . . . tenant may not be evicted by a landlord who has qualified for a § 42 tax credit and is continuing to receive rent subsidies, either during the term of the lease or at the expiration of that term, except for conduct or circumstances that qualify under the Federal law as good cause.”); Cimarron Vill. Townhomes v. Washington, 1999 Minn. App. LEXIS 890, at 6, 1999 WL 538110 (Minn. Ct. App. July 27, 1999) (holding that the prohibition on eviction of low-income tenants from LIHTC units without good cause applies to the entire period of an extended commitment agreement, not just to the tenant’s initial lease term).
• 6IRS Rev. Rul. 2004-82, Q & A 5 (2004).
• 7See La. Hous. Corp., Low-Income Housing Tax Credit Program Compliance Manual app. B.1–2 (Dec. 2022).
• 826 U.S.C. § 42(i)(3)(D).
• 9Memorandum from Benjamin T. Metcalf, Deputy Assistant Sec’y for Multifamily Hous. Programs, HT, Occupancy Protections for HUD-Assisted Households in Properties with Low-Income Housing Tax Credits (Jan. 2, 2015).
• 10Nat’l Hous. L. Project, An Advocate’s Guide to Tenants’ Rights in the Low-Income Housing Tax Credit Program (2021).