Learn all about the Housing Tax Credit program, including its history, how it works, and its impact on Colorado affordable housing.
Impact in Colorado
The need for affordable rental housing is significant. In Colorado, a household must earn $32.13 per hour to afford the 2-bedroom fair market rent of $1,671 per month. More than 407,000 Colorado renter households (51 percent) spend more than 30 percent of their income on housing.
*Data sources: National Low-Income Housing Coalition. 2023. “Out of Reach.”; American Community Survey 2022 1-Year EstimatesWhat are Low Income Housing Tax Credits?
The Low Income Housing Tax Credit (LIHTC) program was created by Congress in 1986 as Section 42 of the Federal Tax Reform Act. Its purpose is to encourage the construction and rehabilitation of low income rental housing by providing a federal income tax credit as an incentive to investors. Both individual and corporate investors may receive 10 years of tax credits in return for investing equity capital into the development of eligible housing projects.
How Do They Work?
Federal housing tax credits are awarded to developers of qualified projects. Developers then sell these credits to investors to raise capital (or equity) for their projects, which reduces the debt that the developer would otherwise have to borrow. Because the debt is lower, a tax credit property can in turn offer lower, more affordable rents.
If the property maintains compliance with the program requirements, investors receive a dollar-for-dollar credit against their federal tax liability each year over a period of 10 years. The amount of the annual credit is based on the amount invested in the affordable housing.
Investment in Colorado
As of December 31, 2023
