The credits are generally awarded to qualifying buildings which are either new construction complexes, existing complexes which require substantial rehabilitation, and federally subsided complexes. The tax credit is based on the cost of the building and qualified expenses. For new construction complexes the rate is the present value of 70% of the qualified basis of the project, or the “9% Equivalent Housing Tax Credit”. Existing complexes and substantially rehabilitated complexes are eligible for credits with a present value of 30% of the qualified basis of the project or the “4% Equivalent Housing Tax Credit”.

To qualify for the tax credits, a project must have rent restrictions and abide by an occupancy percentage which determines the number of units in the complex which will be available only to low-income qualifying tenants. The property’s manager must qualify tenants according to various standards of income levels, credit ratings and rental history in order for the complex to claim the credits.

Generally, each qualified complex must remain as low-income housing for a compliance period of typically fifteen years although the credits are accelerated into the first ten years that the buildings are in service.

If the complex is sold or disposed of or fails to keep the required rent restrictions and occupancy percentages, the tax credits are partially recaptured according to a schedule contained in Section 42 of the Code. Under certain circumstances a complex may be sold before the end of the “compliance period” provided the seller arranges for a bond to cover the possible recapture of the credits if the buyer fails to keep the complex in compliance.

Owners of the complexes, usually limited partnerships, may sell the tax credits to investors in return for the equity position in the limited partnership. These credits particular to qualified low-income complexes are a dollar for dollar credit against the investor’s ordinary federal tax liability. Currently the credit will not offset the federal alternative minimum tax.

Some states have separate tax credit programs to increase the supply of affordable housing in their particular state. These credits are generally available to individuals residing in the state or corporations reporting business in that state. The rules for qualifying complexes are different in the various states and may not necessarily conform to all the federal conditions.

Congress has renewed the credit program again and again. The latest renewal increased the allotment per head of population to a phased-in $1.75 per head from $1.25