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Housing Tax Credit Rates 

In the LIHTC program, there are two tax credit rates: the "9 percent" rate and the "4 percent" rate. For properties with the "9 percent" rate, annual housing credits are roughly equal to 9 percent of the qualified basis each year over a 10-year period. For properties with the "4 percent" rate, annual credits are roughly equal to 4 percent of the qualified basis each year over a 10-year period.  

  • The "9 percent" credit rate. New construction and substantial rehabilitation projects that are NOT otherwise subsidized by the Federal government earn credits at a rate of approximately 9 percent of qualified basis, each year for a 10-year period.
       
    • For this purpose, substantial rehabilitation means rehabilitation with a cost at least equal to the minimums established in the LIHTC regulations.
       
    • "Federa funds", as defined in the LIHTC regulations, includes a loan or obligation of Federal funds where the interest rate on the loan or obligation is less than prevailing Treasury interest rate. Thus, if HOME funds are loaned to the project at or above the Applicable Federal Rate, they are not treated as "Federal funds" for LIHTC purposes. This issue will be examined more closely in Topic 3, entitled "Using LIHTC with HOME Funds," of this training module.
       
  • The "4 percent" credit rate. The 4 percent rate applies to acquisition of eligible, existing buildings and to Federally subsidized new construction or rehabilitation. The 4 percent rate also applies to all eligible basis in projects that are financed through the issuance of volume-cap multi-family tax-exempt bonds (the associated LIHTCs are sometimes called 'as of right' credits because they are automatically attached to the volume-cap bonds).
       
    • Credits awarded to projects financed with tax-exempt bonds are not subject to the per capita limit (see Allocating Housing Tax Credits); however, the underlying bonds are subject to the state private activity bond cap. 

The 4 percent and 9 percent figures are approximations of the actual rates-that is, the exact percentage that is multiplied by the project's qualified basis each year for 10 years. The exact credit rates are published monthly by the U.S. Treasury Department to reflect changes in their market interest rates. Each LIHTC project locks in a tax credit rate at the time the allocating agency makes a binding commitment or at the time the project is placed in service (the developer chooses which time to lock the rate).