- The LIHTC allows a housing developer to offset the construction of affordable housing with a tax credit. Developers who receive this credit can then offer these credits as collateral for investment in their projects. Tax credits are desirable because they reduce the total amount owed on income tax, instead of reducing one's taxable income.
- The enforcement of the regulations and guidelines pertaining to this law fall on the Internal Revenue Service and the Department of Housing and Urban Development. HUD handles allegations of discrimination with regard to housing developers claiming this credit. The IRS administers the actual credit and prosecutes any improper LIHTC claims.
- Federal guidelines stipulate two ways to certify that a housing development qualifies for the LIHTC. The development must contain low rent for 20 percent of the units, if they are occupied by residents who earn less than half of the median income for the county or region. Alternatively, the credit allows residents to earn up to 60 percent of the median income allowance if 40 percent of the units have an affordable rent.
- Although this is a tax credit, the IRS does not offer this to all developers nor does the federal government. Funding is provided to the states who then determine what meets the criteria for low-income housing with respect to federal requirements. Because funding for this credit is not available to all developers of affordable housing, most states allocate funds to units that are well above the federal requirements.
- A study from the Brookings Institute shows that the LIHTC may reduce the negative effects of direct subsidies and alleviate concentrations of poverty and minorities in urban areas. Almost half of all communities funded by the LIHTC are located outside of urban areas, and are much better than government-sponsored housing, of which 76 percent is found in urban areas. This still falls short of the goal to prevent the urbanization of the poor. Since the 1990s, LIHTC communities have consistently decreased family poverty levels and raised their property values, according to Brookings.
