Each year, the IRS allocates housing tax credits to designated state agencies-typically state housing finance agencies - which in turn award the credits to developers of qualified projects. Each state is limited to a total annual housing tax credit allocation of $1.75 per resident, with only the first year of the 10 years of tax credits counting against the allocation. Beginning in 2003, this limit will be adjusted for inflation. View the amount of housing tax credits available in your state.
States allocate housing tax credits through a competitive process. The state allocating agency must develop a plan for allocating the credits consistent with the state's Consolidated Plan. Federal law requires that the allocation plan give priority to projects that (a) serve the lowest income families; and (b) are structured to remain affordable for the longest period of time. Federal law also requires that 10 percent of each state's annual housing tax credit allocation be set aside for projects owned by nonprofit organizations. For additional information, contact your state tax credit allocating agency for a copy of its Qualified Allocation Plan (QAP).
The credit amount for a project is calculated based on the costs of development and the number of qualified low-income units, and cannot exceed the amount needed to make the project feasible. Topic 2 of this module (entitled "Calculating Housing Tax Credits") takes a closer look at calculating the amount of the tax credit.
A State has two years to award housing tax credits to projects. Tax credits not awarded in a year may be carried forward to the next year. If a state is unable to use its tax credits over a two-year period, they are returned to a national pool for re-allocation. If a state awards tax credits to a project that is not completed and the tax credits are returned, the state has an additional two years to award the tax credits to another project within that state.