How Does the Low Income Housing Tax Credit Work for Elderly Residents?

The Low Income Housing Tax Credit (LIHTC) is a program designed to issue substantial tax credits to multifamily housing builders and owners to provide an incentive for them to acquire, rehabilitate, or construct rental housing for lower-income households. Funding for the LIHTC is more abundant than other programs so it represents one of the most important resources for creating affordable housing for low-income households. As of 2018, LIHTC represented approximately 90% of all affordable housing available to low-income families in the United States. 

Of those low-income LIHTC units, only 16% are designated for senior living. However, seniors also reside within units that are not specifically senior-designated. Of all of the units, both senior-designated and non-senior-designated, approximately 30% of residents are age 62 or older.

LIHTC is not Just for Seniors

Although the LIHTC program is not necessarily senior-only, some properties are set aside for senior households. A senior-designated LIHTC community will have an age requirement, which is usually 55 but can be as high as 62 in some communities. Typically, LIHTC communities will incorporate a mixture of non-subsidized, conventional-pay units with low-income units. The community owner must establish how many units will be set aside for low-income and what the set maximum income level is for those units.

Is Rent at an LIHTC Apartment Based on Income?

Unlike other programs, rent for a LIHTC unit is not based on household income. Rent is based on two main factors: the number of bedrooms the unit has and the income bracket (income limit) assigned to the unit. When property owners participate in the LIHTC program they “set aside” a promised number of units to certain income brackets.

An income bracket is determined by establishing the average income, known as the Area Median Income (AMI),  for a particular area and placing households in percentage brackets according to what percentage of the average income the household earns. For example, if the area’s median income were $2,000 per month and a household earned $2,000 per month, they would be in the 100% bracket. But if another household in that same area only earned an income of $1,000 a month, they would be in the 50% bracket. If you are interested in finding what the average income is in your state, you can find a list of AMI by state on HUD's website.

How are LIHTC Household Sizes Determined?

Household income "average" is determined by household size. The more members that there are in a household, the higher the average income will be. This is because, typically, a household with four members will generate more income than a household with one member. For example, for the year 2020, Adams County Colorado posted an average household income that was $70,000 per year for a family of one, but the average income was $100,000 per year for a family of four. It is the median income for a specified household size that will be used to set rent amounts. 

LIHTC rental units don’t use the actual number of household members in the unit to establish the unit's rent, they designate a fixed household number based on the number of bedrooms. They designate 1.5 people for every bedroom the unit has. If a unit has one bedroom, the unit will be designated as a 1.5-person household income level, even if the tenant’s actual household has a different number of people. That does not mean that one and a half people must live in the unit. They do this only to establish what the unit's rent should be, given the number of bedrooms that it has. If a unit has two bedrooms the unit will be designated as a 3-person household so the rent would be based off of the average income of a 3-person household. The bigger the unit, the bigger the designated household. The bigger the designated household, the higher the income limit will be to qualify. The higher the income limit, the higher the rent will be. All of these numbers are strictly figured by area averages and have nothing to do with the actual number of household members or the household’s actual income. Once a unit is assigned an income bracket the rent will be set on the number of bedrooms the unit has.

Tenants must not earn more income than the unit’s bracket allows. If a household were to make 55% of the area average for a unit’s set household size they would not be eligible for a 50% unit. However, they would be eligible for a 60% unit. To further demonstrate, if the unit they select has two bedrooms, their income cap would be no greater than 60% of the area’s median income of a three-person household. If the household lived in Adams County Colorado in 2020, they could not earn more than $54,000 per year.

How is Rent at a Low-Income Housing Tax Credit Unit Established?

Typically rent is established as 30% of the unit’s bracketed monthly income for the allotted household size. That’s a bit difficult to understand without plugging some numbers in, so we will demonstrate this below:

In addition to the rent’s base, the unit will also include a utility charge that is added to the rent (sometimes this can be substantial). The utility allowance is a set amount based on the unit’s estimate of usage. Base rent plus the utility allowance is called the Gross Rent. Tenants do not have an option to pay base rent alone nor will property owners typically disclose what the base rent is. The rent that is charged to the tenant will be gross rent and will include the fees for the unit’s utility bills.

Will Rent Increase at an LIHTC Unit if Income Increases?

Unlike other low-income senior housing programs, once rent is established for the unit there is nothing that the tenant can do to affect it. And, unlike the Section 202 Supportive Elderly Housing Program or the Housing Choice Voucher Program, there is no penalty to the tenant, and rent does not increase if the household’s income increases. Nor does rent decrease if the household earns less. However, since eligibility is reevaluated every year the household could not earn more than the unit’s income bracket or they would no longer be eligible for the unit. If a household does earn more than their limit a larger unit can be offered to the household if one is available. If none are available the household may have to pay full market rent to remain.

The nice thing about Low-Income Housing Tax Credit senior apartments is that they are much easier to apply for than some of the other HUD programs. Except for maximum income verification, applying for a LIHTC unit is not much different than applying for any other unit. A tenant normally just selects a community that has LIHTC units and then applies directly at the community’s office. And, like other HUD programs, seniors still can claim a $400 income deduction to help them better qualify.

Tenants can also combine the LIHTC program with HUD’s Housing Choice Voucher (HCV) program. The rent amount can be reduced by the value of the voucher which can really lead to substantial savings. To obtain a voucher a tenant must first apply and qualify with the Public Housing Authority (PHA) during the HCV program’s open enrollment period.

While the LIHTC program is more widely available and more easily obtainable, there are some things to consider when a senior is looking for an apartment. The apartment the senior selects should be near necessary amenities, like doctors and grocery stores. Public transportation to and from those places, if the senior does not drive, is something that needs to be investigated to ensure that it is close by, easily accessible, and reasonably priced. Also, determining what type of support system will be available for the seniors when they move into the community will be important to know. Because LIHTC does not have dedicated Service Providers, like the Section 202 Communities do, it's important to make sure that the senior has a network of caring people close by.

Low-Income Housing Tax Credit apartments can be a great option for seniors who are low-income but need to find housing faster. For more information about other options, please see the How to Find Low-Income Senior Housing topic details about other programs.

If you are interested in receiving a list of LIHTC Senior Apartments near you please visit HUD’s LIHTC Property Data search page.