Section 42 Tax Credit

As a condition for receiving housing tax credits owners must keep the units affordable for a specified number of years.

Section 42 tax credit. Law and questions and answers a. A prior section 42 added pub. The credits are also commonly called section 42 credits in reference to the applicable section of the internal revenue code.

The program regulations are under section 42 of the internal revenue code. Eligible basis and qualified basis issues law section 42 a provides for a credit for. According to the urban institute the process for allocating tax credits competitively is guided by federal regulation uses federal dollars and is controlled by states.

It particularly benefits low income residents of high rent high income locales like. 132 which related to general tax credit allowed to individuals in an amount equal to the greater of 1 2 of taxable income not exceeding 9 000 or 2 35 multiplied by each exemption the taxpayer was entitled to. The tax credit encourages developers to build affordable housing to meet the needs of the community.

The irc 42 low income housing credit program was enacted by congress as part of the tax reform act of 1986 to encourage new construction and rehabilitation of existing buildings as low income rental housing for households with income at or below specified income levels. The tax credits are more attractive than tax deductions as the credits provide a dollar for dollar reduction in a taxpayer s federal income tax whereas a tax deduction only provides a reduction in taxable income. Section 42 is also known as the low income housing tax credit and is also an income based housing program but it works differently than section 8.

Unlike section 8 rentals section 42 doesn t provide tenants with government assistance. You may see an lihtc credit called a section 42 tax credit because it s based on section 42 of the federal tax law. Properties financed under section 42 are required to house a percentage of residents earning less than 60 percent of the area s median income.

Section 42 low income housing credit also 1 42 5 1 42 15 1 103 8 rev. Section 42 the low income housing tax credit is one of the federal government s low cost housing programs. That may mean regular checks to make sure appliances work tiles in the bathroom and kitchen are maintained and all alarms such as fire extinguishers fire alarms and carbon monoxide alarms are in working order.