The Section 42 Tax Credit Program
The Section 42 LIHTC Tax Credit Program is for moderate- and lower-income individuals and families. Congress created the Program in 1986 as part of the Tax Reform Act, administered by the Internal Revenue Service.
Benefits to You
Residents will benefit from access to newly constructed or substantially renovated apartments with rents that are typically below market rate. Under the Section 42 Program, rents are no higher than 30% of the area median income as published by the Department of Housing and Urban Development Agency (HUD), which often results in rents lower than comparable apartments in the area.
Incentive to Owners
Community owners are offered a reduction in their tax liability in exchange for offering quality housing at low, fixed rents. To be eligible for this reduction, owners must annually certify that community residents are qualified under the Program’s requirements and are paying the correct rent.
Difference from Housing Programs
This Program is not a subsidized housing or Section 8 program. Each resident is responsible for the full amount of rent each month. The rental amount is not based on individual household income but on the pre-set income limits in the area. Some apartments within a particular apartment community may not be part of this program. The rent for these apartments will often be higher.
Determine Your Eligibility
To find out if you qualify for the Program, management must determine if you meet:
- Income eligibility
- Other program requirements
- Community resident selection criteria
All of these points are detailed below. If you meet the Program requirements, along with management's resident selection criteria, you will qualify for an apartment.
To be eligible, total household income, including income from assets, must be less than or equal to the pre-set income limit for the area.
To verify eligibility, an interview will be conducted with you and other adult members of your household to determine all income and asset sources.
Finally, all income and assets will be verified. It will be your responsibility to assist management and to provide all necessary information to expedite the verification process (for example, names, addresses, etc.). We will calculate total household income using the information provided by your income and asset sources.
Other Program requirements are often specific to the apartment community where potential residents apply. Some apartment communities or individual apartments may be designated for certain population groups, such as elderly adults or individuals with disabilities. Potential residents should discuss these other requirements with the community management staff.
Understanding and Qualifying for Section 42 Tax Credit Residency
The Section 42 housing program refers to that section of the Internal Revenue Tax Code that provides tax credits to investors who build affordable housing. Investors receive a reduction in their tax liability in return for providing affordable housing to people with fixed or lower incomes.
Household qualification to reside at a Section 42 community falls under laws mandated by the federal government. The actual income limits are determined by the Department of Housing and Urban Development (HUD) per county or metropolitan statistical area and by the number of persons in the household.
In addition to standard wages, income includes money received from all sources such as alimony, child support, pensions, Social Security and asset income. Income must be verified by a third-party source prior to being accepted for residency at a Section 42 community and will be reviewed on an annual basis.