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What Is Low Income Tax Credit

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Know The Questions Your Tax Preparer May Ask You

What Is the Low Income Housing Tax Credit?

Your preparer will ask you many questions to find out your correct:

  • Income
  • Deductions

Its important to answer all the questions and to give your preparer all the information they need.

Remember: Youre responsible for what’s on your tax return.

If your tax return has errors, we may audit your return. An audit may delay or reduce your refund or cause you to owe additional tax, penalties and interest.

For more information on how to avoid common errors on your EITC claim, see:

How Real Estate Developers Receive The Tax Credit

Usually, a group of investors creates a business entity to build or renovate structures to create housing that qualifies as affordable. In order to meet the requirements, the housing project must go through a qualification process, based on the availability of units in the project for use by low-income individuals.

To receive low-income housing tax credits, properties must be qualified. To qualify, a building must:

  • Include a specific minimum percentage of affordable units.
  • Remain affordable for a minimum of 30 years.

The tax credits come in two types:

  • A 4% credit for new construction that involves other government assistance or buying an existing project.
  • A 9% credit for new construction with no government assistance.

Financial Crisis Impact On Lihtc

Under law, the only investors eligible for Low-Income Housing Tax Credit investments are large C;corporations. As the financial markets deteriorated in the second half of 2008, so did the C;corporations profits that are typically offset by tax credits, like the LIHTC. As a result, the market for LIHTCs was decimated. The development of new tax credit properties and rehabilitation activities for older affordable housing properties froze completely.

Congress took action in February 2009 to help restart the LIHTC market. The American Recovery and Reinvestment Act of 2009 created two gap-financing programs to help tax credit properties, which were ready to begin construction, get additional financing.

First, Title XII of the Recovery Act appropriated $2.25 billion to the HOME Investment Partnerships Programadministered by the U.S. Department of Housing and Urban Development for a grant program to provide funds for capital investments in LIHTC projects. HUD awarded Tax Credit Assistance Program grants to state housing credit agencies to facilitate development of projects that received LIHTC awards between October 1, 2006, and September 30, 2009. The State housing agencies were allowed to offer the assistance in either a grant or loan form to the properties.

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This Tax Credit Provides Builders Money To Create Affordable Housing

The Low-Income Housing Tax Credit is a tax credit for real estate developers and investors who make their properties available as affordable housing for low-income Americans. Its paid for by the federal government and administered by the states, according to their own affordable housing needs. Since the programs inception, nearly 3 million affordable housing units have been constructed with the help of the tax credit.

The Working Income Tax Benefit

(PDF) The Low Income Housing Tax Credit and Racial Segregation

The Working Income Tax Benefit is designed to encourage low-income workers to stay in the work force. To claim the WITB, you must earn at least $3,000 from a job or business. Additionally, the amount of your credit varies depending on your income.

If you qualify, you can claim this refundable credit on your return. Otherwise, you can apply for advance payments and receive them throughout the year.

If the CRA has approved a disability certificate for you, you may claim the disability supplement as long as you have at least $1,500 in working income.

In 2019 the WITB will be replaced by the Canada Workers Benefit, a similar credit, but enhanced, and more accessible than the WITB.

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To Obtain More Information

To obtain more information on Michigan’s Low Income Housing Tax Credit Program, or to discuss how the credit can be applied to a specific project, call the Low Income Housing Tax Credit Program at

517-335-9932

The following example illustrates the value of the tax credit to a developer who constructs a 100-unit building at a total cost of $60,000 per unit with taxable financing and reserves all of the apartments for low income tenants:

Qualifications To Live In A Low

If youre in need of affordable housing, an LIHTC property may be a good option for you. However, youll need to meet a few basic requirements and income eligibility as a single person or family. To qualify:

  • You must meet the income requirements of the specific property, which typically means you must make below a certain amount of money. Usually, youll need to earn less than 60% of the AMI. However, income requirements depend on the unit and the number of members in the household.
  • You can be a single person or a family with or without children.
  • There are no citizenship requirements to qualify.

Even if you meet these conditions, you could still be denied. Its important to know the common disqualifiers that make a person ineligible to enroll in the LIHTC program. These include:

  • Poor rental history: You may be asked to provide a list of past landlords, whom the property manager can contact. If you have issues with past rentals, including late or missing payments, multiple complaints or leaving on bad terms, you may not qualify.
  • Bad credit report: Youll likely have your credit reviewed and, while you dont need to have good credit to qualify, a credit history of late or missing payments and other red flags may disqualify you.
  • False information: Never provide false information. Doing so will disqualify you and, more importantly, get you in trouble with the law.

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Types Of Earned Income

  • Wages, salary or tips where federal income taxes are withheld on Form W-2, box 1
  • Income from a job where your employer didnt withhold tax including:
  • Driving;a car for booked rides or deliveries
  • Running errands or doing tasks
  • Selling goods online
  • Providing creative or professional services
  • Providing other temporary, on-demand or freelance work
  • Money made from self-employment, including if you:
  • Own or operate a business or farm
  • Are a statutory employee and have income
  • Benefits from a union strike
  • Certain disability benefits you got before you were the minimum retirement age
  • Nontaxable Combat Pay
  • If you claim nontaxable combat pay as earned income, it may increase or decrease the amount of your EITC. For more information, see Publication 3, Armed Forces Tax Guide.
  • Earned income does not include:

    • Pay you got for work when you were an inmate in a penal institution
    • Interest and dividends
    • Investment income you can make

    What Has Been Liscs Involvement

    Low-Income Housing Tax Credit (LIHTC) Overview

    Since the initiation of Section 4, LISC has invested Section 4 resources to build the capacity of 1,168 CDCs in 299 cities and rural communities across 48 states, the District of Columbia and Puerto Rico.

    LISC Section 4 investments have positively impacted communities as diverse as the Mid South Delta; small urban communities such as Providence, Rhode Island; larger sprawling cities such as Phoenix, Arizona; and urban cores such as the Bay Area in California.

    From 2009 to 2018, LISCs Section 4 investments in both rural and urban areas have leveraged more than $6 billion in direct real estate investments and have assisted in building, renovating, or preserving approximately 33,099 affordable housing units.

    LISC has also invested Section 4 money in programs that address critical national challenges. These initiatives support a wide variety of programs such as green building, the development of healthcare and childcare facilities, the strengthening of neighborhood commercial corridors, job creation, and community safety.

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    Qualifying For The Low

    A wide variety of properties can be eligible for the Low-Income Housing Tax Credit, but more projects are competing for the credits than there are credits, as these are allocated based on state population. To qualify for the LIHTC, a project must meet one of the following conditions:

  • Twenty percent or more of the rental units are rented to tenants earning 50% or less of the median income in the area based on the family size.
  • Forty percent or more of the rental units are rented to tenants earning 60% or less of the median income in the area based on the family size.
  • Forty percent or more of the rental units are rented to tenants with income averaging no more than 60% of the median income in the area and no units are rented to tenants earning more than 80% of the median income.
  • All of the projects receiving the LIHTC must continue to meet one of these income conditions for a period of 15 years. If the project doesn’t comply, the value of the tax credit can be recaptured. One common criticism of the tax credit is that many of the properties in desirable locations cease to be accessible for low-income households once the 15 year period has elapses.

    The Bottom Line: The Low

    The LIHTC program can be beneficial for rental owners, developers and people in need of affordable housing. It provides a tax credit for those renting, building or rehabbing affordable housing units which, in turn, incentivizes them to offer more and more units. This helps make affordable housing more accessible to low-income families.

    No one should ever feel bad about using this program, its designed to help our neighbors in need. If you dont want to rent and wish to purchase a home of your own, it may be possible. The first step is learning how to buy a house with a low income.

    Tested. Trusted. Top-rated.

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    Us Citizen Or Resident Alien

    To claim the EITC, you and your spouse must be U.S. citizens or resident aliens.

    If you or your spouse were a nonresident alien for any part of the tax year, you can only claim the EITC if your filing status is married filing jointly and you or your spouse is a:

    • U.S. Citizen with a valid Social Security number or
    • Resident alien who was in the U.S. at least 6 months of the year youre filing for and has a valid Social Security number

    The Cras Online Services Make Filing And Managing Your Taxes Easier

    What is Low

    The CRA’s online services are fast, easy, and secure. You can use them to file your income tax and benefit return, make a payment, track the status of your return, register for online mail, and more. Access the CRAs full suite of self-service optionsregister for My Account at www.cra.gc.ca/myaccount today, and start managing your tax matters online!

    -30-

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    Why A Tax Credit

    Tax credits and deductions reduce taxes for businesses and investors. Tax credits are used as incentives for businesses to do something. Most tax credits are for individual business owners. For example, a business can get a work opportunity tax credit for hiring new employees who live in certain areas or who have specific barriers to employment.

    Calculating Costs And Benefits

    The LIHTC is estimated to cost around $9.5 billion per year. It is by far the largest federal program encouraging the creation of affordable rental housing for low-income households. Supporters see it as an effective program that has substantially increased the affordable housing stock for more than 30 years. LIHTC addresses a major market failurethe lack of quality affordable housing in low-income communities. Efficiencies arise from harnessing private-sector business incentives to develop, manage, and maintain affordable housing for lower-income tenants.

    Critics of the LIHTC argue that the federal subsidy per unit of new construction is higher than it needs to be because of the various intermediaries involved in its financingorganizers, syndicators, general partners, managers, and investorseach of whom are compensated for their efforts. As a result, a significant part of the federal tax subsidy does not go directly into the creation of new rental housing stock. Critics also identify the complexity of the statute and regulations as another potential shortcoming. Another downside is that some state housing finance authorities tend to approve LIHTC projects in ways that concentrate low-income communities where they have historically been segregated and where economic opportunities may be limited. Finally, while the LIHTC may help construct new affordable housing, maintaining that affordability is challenging once the required compliance periods are over.

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    Earned Income Tax Credit Relief

    If your earned income was higher in 2019 than in 2020, you can use the 2019 amount to figure your EITC for 2020. This temporary relief is provided through the Taxpayer Certainty and Disaster Tax Relief Act of 2020.

    To figure the credit, see;Publication 596, Earned Income Credit.;

    The Earned Income Tax Credit helps low- to moderate-income workers and families get a tax break. If you qualify, you can use the credit to reduce the taxes you owe and maybe increase your refund.

    Did you receive a letter from the IRS about the EITC? Find out what to do.

    Tax Relief For Lift Credit Recipients

    Understanding the Low-Income Housing Tax Credit

    This chart provides three examples of the amount of Ontario Personal Income Tax , excluding the Ontario Health Premium, payable before and after the Low-income Individuals and Families Tax Credit.

    Leftmost section: Jane is a single person with no dependants and $29,200 of employment income, only. In 2019, without the LIFT Credit, Jane would have paid about $850 in Ontario PIT. The LIFT Credit, however, would reduce the amount of Ontario PIT payable by $850 to zero.

    The middle section: David is a single senior who has both employment and non-employment income. David earns employment income of $15,500, and receives $5,500 as a Canada Pension Plan benefit and $7,000 in Old Age Security payments, resulting in a total income of $28,000. In 2019, without the LIFT Credit, David would have paid about $605 in Ontario PIT. The LIFT Credit, however, would reduce the amount of Ontario PIT payable by $605 to zero.

    Rightmost section: Jenny and George are a two-earner couple with one child aged 13 . In 2019, Jenny has employment income of $29,000 and non-employment income of $3,500, while George has $29,500 in employment income only. In 2019, without the LIFT Credit, the family would have paid $1,510 in Ontario PIT in total. The LIFT Credit, however, would reduce the familys Ontario PIT payable by $1,250, reducing their combined Ontario PIT to $260.

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    How Does The Low

    The federal government gives money to every state for low-income housing tax credits, based on population. Each state has a housing agency that awards the tax credit money to groups of developers according to a plan developed by the state. Real estate developers agree to construct buildings that are available to low-income individuals, and in return, the state gives developers tax credits. Developers then sell the credits to investors to raise the money needed to build. The credits can account for as much as 70% of project funding.

    State housing agencies handle the granting of tax credits and management of the process. They receive a specified amount of tax credit money each year. A common way to allocate is explained by California; the credits go to developers of affordable housing projects. Corporations are set up to get investors and equity to create qualified buildings in return for the tax credits.;

    Each state handles the requirements for these tax credits differently. Many states, have a developer experience requirement, for example; some, like Ohio, may permit newer developers to work with more experienced partners.

    The U.S. Department of Housing and Urban Development provides a list of state housing agencies to help you find the right agency for your state.

    How The Tax Credit Program Works

    The maximum tax credit a project may receive is based on a percentage of the portion of rental housing that the owner agrees to maintain as both rent and income restricted for a period of at least 18 years. At a minimum, either 20 percent of the units must be for residents whose incomes do not exceed 50 percent of area median income or 40 percent of the units must be for residents whose incomes do not exceed 60 percent of the area median income . The rents on the units must also be restricted. An annual credit equal to roughly 9 percent of the qualified basis of construction or rehabilitation costs is available to developments not utilizing federal or tax-exempt financing. An annual credit roughly equal to 4 percent of the qualified basis is applicable where federal or tax-exempt financing is utilized and, in certain cases, for acquisition cost associated with rehabilitation.

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    Need A Hand With Filing

    • If you need help filing your return, have a modest income, and a simple tax situation, contact the Community Volunteer Income Tax Program , which coordinates volunteer tax clinics across the country.
    • Representatives You can authorize a family member or another person to represent you by using the Authorize my representative service in My Account. Your representative will have instant access to your information and the online services to easily manage your account.;

    How To Stop The Rest Of This Year’s Monthly Payments

    Harris County seeks to have more influence in tax credit ...

    Families may unenroll from the child tax credit to defer the advance monthly checks and instead receive the remainder of the credit during tax time next year. The sooner you unenroll through the Update Portal, the better because it can take up to seven days for your request to process. Sometime this fall, you’ll be able to re-enroll if you change your mind.

    Here are the remaining deadlines for unenrolling from the advance monthly payment program.;

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