As part of the Tax Reform Act of 1986, the United States Congress created the Low-Income Housing Tax Credit (LIHTC) Program to promote the development of affordable rental housing for low-income individuals and families. To date, it has been the most successful rental housing production program in the nation, creating thousands of residences with very affordable rents.
The housing tax credit, rather than a direct subsidy, encourages investment of private capital in the development of rental housing by providing credits to offset an investor's federal income tax liability.
In exchange for the financing provided through the credit, owners agree to keep rents affordable over a 30-year period for families with incomes at or below 60 percent of the local median income.
Financial institutions, such as banks, insurance companies and government-sponsored enterprises make equity investments in exchange for receiving the tax credits. Equity from the sale of tax credits reduces the amount of debt financing that the property owner incurs. This process reduces the property’s monthly debt service, lowers the operating costs, and makes it economically feasible to operate the property at below-market rents.
KHRC administers the LIHTC program on behalf of the State of Kansas. The Corporation allocates credits based upon selection criteria and application ranking procedures set forth in KHRC's housing allocation plan. In addition, KHRC monitors tax credit properties during the compliance period to ensure that rents and residents’ incomes do not exceed program limits, and that properties are well-maintained. KHRC has authority to allocate approximately $60 million of ten year credits each year.