Get Revenue Ruling 1997-4 - Low-income Housing Tax Credit.. This Ruling Clarifies That Section

Residency. The Section 42 housing program refers to that section of the Internal Revenue Tax Code which provides tax credits to investors who build affordable housing. Investors receive a reduction in their tax liability in return for providing affordable housing to people with fixed or lower income.

Section 42(a) provides for a credit for investment in certain low-income housing buildings. The amount of the low-income housing credit for any taxable year in the credit period is an amount equal to the applicable percentage of the qualified basis of each qualified low-income building (as defined in § 42(c)(2)).

Section 42 provides that, for purposes of section 38, a low-income housing credit is determined for a building in an amount equal to the applicable percentage of the qualified basis of the qualified low-income building.

2085 (1986 Act) created the low-income housing credit under section 42 of the Code. Section 42(a) provides that the amount of the low-income housing credit for any taxable year in the credit period is an amount equal to the applicable percentage of the qualified basis of each qualified low-income building.

A household must meet two tests in order to be eligible for Section 42 housing. First, the household must be income eligible. Second, the household must meet the program's student status rule. Before discussing these two rules, it is first important to understand the definition of household.

Your income must be no less than 30 percent and no greater than 50 percent of your area's median income limits as defined by HUD.

To promote continued availability of affordable rental housing, Section 42(i)(7) allows a nonprofit partner to hold a contractual ROFR to purchase the LIHTC property at the statutory minimum price, which is frequently referred to as the “debt plus taxes” price and below fair market value.

The LIHTC program reduces the federal tax liability in exchange for the acquisition, rehabilitation, or construction of affordable rental housing units that will remain income and rent restricted over a long period (55 years for California).