How Do Low Income Housing Tax Credits Work?
Do you want to know how low income housing tax credits work? Low income housing tax credits allow those who are considered to have low-income status to rent homes at a reduced rate. The tax credits, however, benefit more than just consumers, however, although they are without the ones who stand to reap the most gain from them.
Developers who have projects that qualify for the low income housing tax credits are awarded low income housing tax credits by the Federal government. The developers then turn around and sell these credits to those who wish to invest in the developers’ qualifying projects. It is from these sales that the equity is raised. This money reduces the amount of a loan that a developer would or might otherwise have to make in order to finance the project.
The tax credits allow the developer to not only finish his product but to offer the property at a lower rent than he might normally have to charge. This makes it more affordable to prospective tenants.
As long as program requirements continue to be met, those who invested in the project will receive a dollar-for-dollar credit which will be placed against their yearly Federal tax liability. This can continue for ten years. The amount that will be credited as a result of the low income housing tax credits depends on how much was initially invested.
As mentioned earlier, low income housing tax credits help everyone. Developers who are interested can determine their eligibility by contacting a financial advisor or Housing and Urban Development (HUD.)