Affordable Housing Tax Credits - IRC Section 42

In the 1986 Tax Act the Federal Government created an incentive program for developers to build privately owned apartments for those who could not afford to pay market rate rents.

Under this program the U.S. Treasury Department allocates tax credits to each state based on that states population. These credits are then awarded to developers who, together with an equity partner, develop and maintain apartments as affordable units.

The corporate equity partner enjoys the benefits of a predictable 10 year stream of credits, depreciation and interest deductions. The developer stays involved in the transaction to manage the property for its passive corporate partner.

The government's incentive to provide the credits is to build much needed affordable housing in a market where gap between supply and demand continues to widen. The cost to the government in lost tax revenue is far less than the cost to develop these properties on its own.

Tenants benefit from clean safe housing which they otherwise could not afford, and corporations benefit from the tax benefits. It is truly a win-win situation.The affordable housing tax credit program provides about 120,000 new units of affordable apartments each year. The program has been so successful that a unanimous bipartisan Congress recognized the increasing need for affordable units and approved an increase in the amount of available credits by 40%.