Tip:
Highlight text to annotate it
X
This is the story of how the Low Income Housing Tax Credit program (or some people call it
LIHTC) changes this into affordable rental housing.
Scooter is a nonprofit developer. He wants to turn the abandoned school down the street
into apartments low-income families can afford. He's done his research: the financials work,
his nonprofit can maintain the apartments, and there are plenty of people who work in
the area that need affordable housing.
Scooter meets with neighborhood residents and they think the project to revitalize the
abandoned school is great, so Scooter picks out his development team and he's ready to
go!
Except he needs $750,000 to start the project. Where can he get that money?
Scooter knows about the Low Income Housing Tax Credit. His project meets the program
requirements, so he submits an application to the state government. In Michigan, the
agency overseeing these tax credits is MSHDA, the Michigan State Housing Development Authority.
MHSDA has a certain amount of tax credits to give out each year. And this year one of
the projects they choose is Scooter's.
MSHDA gives Scooter a nonrefundable federal tax credit worth $1,000,000 over ten years.
This sounds great, but Scooter's development company is a nonprofit. They pay nothing in
federal taxes, and LIHTC is nonrefundable, so even if the tax owed goes negative Scooter's
nonprofit won't get any money back.
Meanwhile, over at Hometown Bank, community investment officer Juanita is trying to find
a way to improve the bank's CRA rating. Last year it was low, which means Hometown Bank
did not invest enough in low to moderate-income communities. Hometown Bank also pays a lot
in taxes.
Enter Scooter with his low-income housing project and tax credits.
Juanita and Scooter make a deal. Hometown Bank will buy the $1 million tax credit for
$750,000 and they will become a partner in the housing project for the next 15 years,
sharing the risk. The bank can use the tax credit to take $100,000 off their tax bill
every year for the next ten years -- AND because they are investing in a project to benefit
low-income families, they will get a higher CRA rating.
Scooter gets the $750,000 up front and is able to start turning the school into affordable
apartments.
The Low Income Housing Tax Credit is a win for both Scooter's nonprofit and Juanita's
bank, and also for the construction workers Scooter will hire, the families that move
into the apartments, and the neighbors who will live next to other people instead of
an empty, unsafe building. Hurray!
Those are the basics. You can find technical information and application guidelines for
Low Income Housing Tax Credits at hud.gov or michigan.gov/mshda.