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  • The Center for Rural Homelessness

What is the Low-Income Housing Tax Credit Program?

By: Katie Baughman, Policy Intern


The Low-Income Housing Tax Credit Program (LIHTC) is a federal income tax reduction for investors in low-income rental housing. It was established in 1986 as a part of the Tax Reform Act. LIHTC is dollar-for-dollar, meaning that up to a certain percent of development costs, every dollar spent on low-income or very low-income rental housing is a dollar deducted from federal income taxes. Credits are competitive, and allocated by states or community housing agencies; LIHTC is then administered by the Internal Revenue Service (IRS) as a non-refundable tax credit. Credits incentivise private investment in low-income housing development by providing investors an incentive to develop, and also provide deductions for low-income housing preservation. 

Properties that receive LIHTC benefits must remain affordable for at least 30 years, and must serve individuals and families who make under 60% of an area’s median income (AMI). However, much of the served population falls way below this cap, and almost half of tenants in LIHTC-funded housing are classified as extremely low-income, meaning they fall below 30% of the AMI. Since 1986, LIHTC has aided the development and preservation of over 2.1 million units of affordable housing across the country. 


While most LIHTC properties are created in urban and suburban areas, it’s also a huge resource for rural communities. Rural communities often have limited rental housing, and 1 in 4 rural renters are cost-burdened. Then, building affordable housing for low-income rural individuals and families requires not only development of new housing, but also affordability. LIHTC incentivizes low-income housing development, and is sometimes the primary or sole source of safe, affordable rental housing preservation and development in rural, low-income areas. However, since many rural communities are so sparsely populated it becomes difficult to measure an AMI, rural developments receiving LIHTC funds can instead use the National Non-Metropolitan Median Income, which is often higher than the AMI; this perhaps allows more developments to be made in rural areas but also can make the developed housing less affordable.

Between LIHTC’s creation in 1987 and 2015, over 236,000 units of affordable rental housing were preserved or developed in 1600 different rural communities. In over 50 rural communities, mostly in the south, LIHTC investments have financed over 12% of all rural rental housing. LIHTC, then, is an important resource in mitigating rural homelessness.

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