Bookmark and Share
 
Research
HUD USER Home > PD&R Edge Home > Research
 

HUD Designates Low-Income Housing Tax Credit Qualified Census Tracts for 2013

With the Tax Reform Act of 1986, Congress created Low-Income Housing Tax Credits (LIHTCs) to incentivize the private market to invest in affordable rental housing. Each year, the Internal Revenue Service allocates low income housing tax credits to state agencies usually state housing finance agencies that award the credits to affordable housing developers, giving priority to projects that serve the lowest income families and remain affordable for the longest periods. LIHTCs are also available automatically to affordable rental housing financed by state-issued private activity bonds.

Map of U.S. showing Qualified Census Tracts
Map of U.S. showing Qualified Census Tracts

Developers use LIHTCs to raise capital for the construction and rehabilitation of affordable rental housing projects nationwide. Investors who purchase ownership interests in LIHTC projects receive federal tax credits annually for a period of 10 years that offset their other tax liability dollar-for-dollar. The purchases help reduce the amount of money a developer must borrow to finance a construction or rehabilitation project and result in lower, more affordable rents for low-income families due to lower debt service expense. Most of these rental properties are composed entirely of low-income units, although a mix of affordable and market units is permitted. Rents and utilities for low-income units are restricted for a minimum of 30 years and adhere to one of two low-income occupancy threshold requirements:

  • The 20-50 Rule - At least 20 percent of the units must be rent-restricted and occupied by households with income at or below 50 percent of area median income; or
  • The 40-60 Rule - At least 40 percent of the units must be rent-restricted and occupied by households with incomes at or below 60 percent of area median income.

The amount of tax credits available to a project depends on the development cost (excluding land), the proportion of affordable units set aside, and the credit rate (which varies based on the development method and whether other federal subsidies are used). Credits provide benefits with a present value equal to either 30 or 70 percent of a property's qualifying basis. The 30-percent tax credit is for acquisition or for federally financed rehabilitation and new construction. The 70-percent tax credit is for nonfederally financed rehabilitation or construction.

In 1989, Congress added provisions to the program to encourage production of affordable housing units in hard-to-serve areas. Specifically, the act permits projects located in Difficult Development Areas (DDAs) or Qualified Census Tracts (QCTs) to claim 30 percent more in tax credits than identical projects outside of these areas. Designated by HUD, DDAs are metropolitan or nonmetropolitan areas in which construction, land, and utility costs are high relative to incomes; QCTs are census tracts in which at least half of the households have incomes that are less than 60 percent of the area median income or have a poverty rate of at least 25 percent.

On April 20, 2012, HUD published a Federal Register Notice designating new Qualified Census Tracts (QCTs) for the Low-Income Housing Tax Credit (LIHTC) program to go into effect January 1, 2013. Under the LIHTC, affordable rental housing projects located in QCTs are eligible for up to 30 percent more tax credits than they otherwise would be. QCTs are also one component of the Small Business Administration’s Historically Underutilized Business Zones (HUB Zones). Small businesses that are located in HUB Zones, and have a sufficient percentage of employees that reside in HUB Zones, may be eligible for federal contracting set-asides and pricing preferences. For the 2013 QCT designation, HUD uses data from the 2010 Decennial Census and the 2006 to 2010 American Community Survey 5-year tabulations (in previous designations, HUD used 2000 Census data). Census tracts are eligible to be QCTs if either the poverty rate in the tract is 25 percent or higher, or 50 percent or more of the households in the tract have incomes below 60 percent of the area median income (i.e., would be eligible to live in LIHTC-financed housing).

Although HUD does not administer this subsidy program for the construction and rehabilitation of low-income rental housing, the Office of Policy Development and Research compiles and tracks information about LIHTC projects and their impact on the nation's rental housing supply. New units put into service are in the most recent update of the database. More information is available at the following web sites: