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June 4, 2021

Expansion of low income housing tax credit, new neighborhood homes investment credit included in Biden Administration's FY2022 budget

The Biden Administration's FY2022 budget and Treasury Green Book propose a new type of housing credit dollar amount (HCDA) called an Opportunity HCDA (OHDCA), which would expand the amount of low income housing tax credits (LIHTCs).

The Administration also proposes creating the neighborhood homes investment credit (NHIC), which would support new construction and substantial rehabilitation for residential homeowners.


Under the LIHTC program (IRC Section 42), state and local housing credit agencies annually receive a pool of HCDAs, which the agencies allocate to eligible projects. Selected projects must comply with federal requirements to qualify (a certain percentage of residential units must be rent-restricted and occupied by low-income tenants). For each of 10 years, the project with an HCDA allocation may claim LIHTCs equal to the lesser of the initial allocation or the product of three figures: (1) the depreciable cost of the entire building (eligible basis); (2) the portion of the building that consists of low-income units; and (3) a credit rate.

Certain projects located in difficult development areas (DDAs) (designated by the Secretary of Housing and Urban Development (HUD) due to high construction, land or utility costs relative to area median gross income) may compute their LIHTCs based on 130% of actual depreciable basis (a "basis boost").

Administration proposal

The proposal would create an OHCDA, which state and local agencies would allocate in addition to allocating HCDAs. The majority of OHCDAs would have to be allocated to projects in Census Tracts of Opportunity (CTOs) (tracts that are entirely in DDAs or have low poverty rates or other advantages).

In 2022 through 2026, the aggregate number of new OHCDAs would be 118% of the aggregate annual number of new HCDAs. The OHCDAs would be made available to all states on a per-capita basis. The per-capita amount for each state would be determined by a formula to be established by the Treasury in consultation with HUD. The formula would give higher amounts to states "with higher costs of constructing and operating affordable housing, as demonstrated by, for example, larger populations living in DDAs or higher percentages of rent-burdened households." Projects in DDAs that receive allocations of either HCDAs or OHCDAs would claim LIHTCs based on 150% of actual depreciable basis.

While the newly available OHCDAs would eventually be completely utilized, the additional allocation of LIHTCs and the increased basis boost for projects in DDAs would be permanent.


According to the Green Book, "there are no [f]ederal tax provisions that directly support building or renovating owner-occupied housing or that cover a development or financing gap."

The Administration's proposal would create the neighborhood homes investment credit (NHIC) to support (1) new construction for sale, (2) substantial rehabilitation for sale and (3) substantial rehabilitation for existing homeowners. The NHIC would apply to construction or rehabilitation of single-family homes (including homes with up to four dwelling units), condominiums or residences in a housing cooperative.

The Treasury Secretary would allocate $2 billion of NHICs in 2022, and $2 billion each year thereafter, indexed for inflation, until 2031, to the 50 states, the District of Columbia, and US possessions. The Treasury Secretary would establish rules to allocate the NHICs among states. Additionally, the Treasury Secretary would consult with HUD on establishing criteria for identifying neighborhoods where projects would generally need to be located in order to be eligible for NHICs, as well as criteria for allocating NHICs to owner-occupied rehabilitation projects in rural communities and gentrifying census tracts.

Each state would create a new agency (or identify a pre-existing agency) to serve as the Neighborhood Homes Credit Agency (NHCA) to allocate NHICs. A selected project sponsor may claim NHICs only after construction, inspection and owner occupancy. For an owner-occupied rehabilitation, NHICs could be claimed after construction and inspection but only if the owner-occupant is an "NHIC-Qualified Owner," which requires the owner to meet criteria that will be established by the Treasury Secretary and have a household income that does not exceed 140% of area/state median income. If the owner-occupant leaves the residence within five years of qualifying for the NHIC, a portion of the NHIC (in accordance with a formula in the Green Book proposal) would generally have to be repaid to the NHCA.


The additional allocation of tax credits under the LIHTC program should help to lessen the significant shortage of affordable housing in the US. The increased basis boost for projects in DDAs should help offset the rising cost of acquiring land/buildings in high-cost areas.

The proposed NHIC program could help close the housing gap for the growing number of people who do not qualify for the LIHTC program (i.e., tenants who make more than 60% of area median income) but might not be able to find "affordable" housing (commonly defined as spending 30% or less of your income on rent). As the direct residents are unlikely to have the tax burden to utilize the credits efficiently, a vibrant market that buys and sells NHICs will likely be necessary for the program to succeed. The NHIC program bears similarities to the LIHTC program, so one could assume that the monetization market would look similar to that of the LITHC program; enough differences exist, however, that it will be important to monitor how that market evolves if the proposal becomes law.


Contact Information
For additional information concerning this Alert, please contact:
Tax Credit Investment Advisory Services Group
   • Michael Bernier (
   • Renee Ibarra (