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March 30, 2018

Consolidated Appropriations Act expands Low Income Housing Credit

The "Consolidated Appropriations Act, 2018" (the Act), enacted into law on March 23, 2018, increases the State housing credit ceiling on low income housing credits by 12.5% for 2018, 2019, 2020, and 2021. In addition, the Act adds a third optional test to the "20-50" and "40-60" tests for a qualified low-income housing project, and is effective for elections made after March 23, 2018.


Section 42 allocates low-income housing tax credits (LIHTC) to state housing agencies in proportion to their population. The state housing agency can then allocate those credits to projects that meet that state's particular needs and goals. The projects receive a tax credit up to the applicable percentage of the qualified basis of newly constructed or a substantially rehabilitated low-income residential rental property.

In order to qualify for LIHTC, a minimum portion of a building must be rent-restricted and occupied by low-income tenants. Of a building's total units, at least 20% must be occupied by tenants with income at or below 50% of the area median income (AMI) (the 20/50 test) or 40% occupied by tenants with income at or below 60% of AMI (the 40/60 test).

Expansion under the Act

The Act increases the State housing credit ceiling on low income housing credits by 12.5% for 2018, 2019, 2020, and 2021. The increase applies after any applicable cost of living adjustment.

The Act also adds a new optional test, the average income test, in addition to the 20/50 and 40/60 tests to determine if a project meets the minimum requirements. The new test requires that 40% or more (25% or more in the case of a project located in a high cost housing area) of the residential units be both rent-restricted and occupied by individuals whose income does not exceed the imputed income limitation designated by the taxpayer. The taxpayer may designate an income limitation of 20, 30, 40, 50, 60, 70, or 80%, so long as the average limit does not exceed 60% of the area median gross income. The intent of this provision is to allow properties to target very low-income households while still maintaining financial feasibility via the higher rents received from households above 60% of the area median gross income.

If the taxpayer elects the average income test and the income of the occupants of the unit increases above 140% of the greater of (i) 60% of area median gross income, or (ii) the imputed income limitation designated by the taxpayer with respect to the unit, then the next available unit in a project ceases to be treated as a low-income unit if any residential rental unit in the building (of a size comparable to, or smaller than, such unit) is occupied by a new resident whose income exceeds the applicable imputed income limitation. In the case of a deep rent skewed project, 170% applies instead of 140% and other special rules apply.

The average income test is available for election after March 23, 2018.


The increase in the tax ceiling will help provide a significant number of much-needed affordable housing units throughout the country. It also adds to the supply of tax credits in the market. The increased supply of available tax credits resulting from these provisions may affect yields in future tax equity investments. Likewise, any impact on yields will have a counterbalancing impact on the tax equity cash available for low-income project developers.

Finally, taxpayers should confirm that the parties responsible for program compliance understand the rules surrounding "income averaging" in order to minimize issues of noncompliance. Parties reviewing new transactions should ensure they are properly evaluating how "income averaging" may impact the real estate risk profile of the project.


Contact Information
For additional information concerning this Alert, please contact:
Tax Credit Investment Advisory Services Group
Michael Bernier(617) 585-0322;
Renee Ibarra(617) 585-0948;
Dorian Hunt(617) 375-2448;