LIHTC rent and income limits are set locally each year: income caps come from HUD’s Area Median Income (AMI) figures for the county or metro area where the property sits, and the maximum gross rent for a unit is 30% of the income limit that matches its assumed household size. Both numbers move annually, both depend on choices the developer locked in when the building entered the program, and both carry compliance rules that reach well past move-in day.
Where the Numbers Come From
Every limit in the program traces back to one figure: the Area Median Income for the region where the property sits. HUD estimates median family income annually for each metropolitan area and non-metropolitan county in the country.1HUD USER. Income Limits The median is the midpoint of local household incomes — half of households earn more, half earn less.
Because the calculation is local, dollar amounts vary widely. A four-person household qualifying at 60% of AMI in a high-cost coastal metro may be allowed roughly double the income of a four-person household at the same percentage in a rural county. HUD also adjusts limits in areas where housing costs run disproportionately high relative to local incomes.
New figures come out each spring, and LIHTC properties must implement them within 45 days of release. For FY 2026, HUD delayed the release from April 1 to May 1 because of a Census Bureau data delay.2HUD User. Statement on FY 2026 Median Family Income Estimates and Income Limits
When AMI rises, both income and rent limits rise with it. When AMI falls, a statutory floor kicks in. Under IRC Section 42(g)(2)(A), the income limit for any unit can never drop below the limit that applied when the building first became part of a qualified low-income housing project.3Office of the Law Revision Counsel. 26 USC 42 – Low-Income Housing Credit The hold harmless protection runs with the building rather than the tenant, so it applies regardless of when a household moved in.
The Income Ceiling Depends on the Developer’s Set-Aside Election
When a developer applies for tax credits, they pick one of three qualifying tests. The election is permanent and determines which AMI tiers apply to the property for its entire affordability period.3Office of the Law Revision Counsel. 26 USC 42 – Low-Income Housing Credit
- 20-50 test: at least 20% of units rent-restricted and occupied by tenants at or below 50% of AMI.
- 40-60 test: at least 40% of units rent-restricted and occupied by tenants at or below 60% of AMI. This is the most common election.
- Average income test: at least 40% of units rent-restricted, with individual units designated at any level from 20% to 80% of AMI in 10-percentage-point increments, provided the average of the designated units does not exceed 60%.
The average income test, added in 2018, lets a single property mix deeply affordable units with units serving households closer to 80% of AMI. The designation for each unit must be set no later than when it is first occupied as a low-income unit, and it can only be changed under narrow circumstances such as restoring compliance or accommodating a tenant transfer within the project.4Federal Register. Section 42, Low-Income Housing Credit Average Income Test Regulations
How Household Size Changes the Income Limit
HUD’s published income limits use a four-person household as the baseline and adjust up or down from there. A one-person household faces a lower cap than a family of five. HUD publishes tables for households of one through eight; for households larger than eight, each additional person adds 8% of the four-person limit.
So the qualifying income for any specific unit depends on two things at once: the AMI percentage tied to the unit under the developer’s election, and the number of people who will live there.
One detail catches applicants off guard. A live-in aide who provides essential care for a household member is generally not counted as part of the household for income-limit purposes, and the aide’s income is excluded from the calculation. The aide does still affect the bedroom size the household may need.
How the Rent Cap Is Calculated
Rent in the tax credit program attaches to the unit, not to the tenant’s own income. The maximum gross rent is 30% of the applicable income limit, using an assumed occupancy of 1.5 persons per bedroom to pick the relevant household size.3Office of the Law Revision Counsel. 26 USC 42 – Low-Income Housing Credit A studio uses the one-person income limit. A one-bedroom uses the 1.5-person figure, interpolated between one- and two-person limits. A two-bedroom uses the three-person limit. A three-bedroom uses the 4.5-person figure, and so on.
“Gross” is doing important work here. The gross rent cap covers everything the tenant pays for housing: the contract rent plus a utility allowance for tenant-paid utilities like electricity, gas, and water. If the tenant pays their own utilities, the landlord subtracts a pre-determined utility allowance from the gross cap, and the remainder is the maximum contract rent the owner can collect.
Utility allowances come from local public housing authorities or from energy consumption models approved by the state housing finance agency. When those allowances rise, contract rents sometimes have to fall to stay under the cap, even if the gross rent limit itself hasn’t moved.
What Counts as Income at Certification
Every applicant completes a Tenant Income Certification. It captures gross income from all sources: wages before deductions, Social Security benefits, pensions, alimony, and other recurring payments. Applicants typically supply recent pay stubs, tax returns, benefit award letters, and bank statements, and the property manager verifies the information through third-party contacts with employers and financial institutions.
Assets get separate scrutiny. Savings accounts, certificates of deposit, and investment accounts all count. When the actual income from an asset cannot be determined, the property manager imputes income using HUD’s published passbook savings rate, which for 2026 is 0.40%.5U.S. Department of Housing and Urban Development. 2026 HUD Inflation-Adjusted Values and Passbook Rate The imputed figure gets added to the household total even if the money is sitting untouched. Many state agencies now let tenants with assets under a set threshold self-certify their asset values rather than provide full third-party verification, though the threshold depends on which state rules apply.
Misrepresenting income or hiding assets can lead to disqualification and possible fraud consequences. Gathering documentation before applying keeps the process from stalling.
Recertification Waivers for 100% Low-Income Buildings
Buildings where every unit is occupied by qualifying low-income tenants can apply for a waiver from annual income recertification by filing IRS Form 8877. Once approved, the owner no longer needs to re-verify household income each year for tenants who have already passed initial certification. The waiver runs through the end of the 15-year compliance period unless the building stops being 100% low-income, the owner violates Section 42, or ownership changes hands.6Internal Revenue Service. Request for Waiver of Annual Income Recertification Requirement (Form 8877) Initial income verification for every new tenant is still required.
The Full-Time Student Restriction
A unit occupied entirely by full-time students generally does not qualify as a low-income unit. The rule only applies when every household member is a full-time student; a single non-student in the household takes the household out of the restriction.
Congress carved out exceptions that allow all-student households to qualify:3Office of the Law Revision Counsel. 26 USC 42 – Low-Income Housing Credit
- Married students entitled to file a joint return.
- A single parent living with their children, provided neither the parent nor the children are dependents of another person (other than the children being dependents of a parent).
- Students receiving assistance under Title IV of the Social Security Act, such as TANF.
- Students enrolled in programs receiving assistance under the Workforce Innovation and Opportunity Act or similar federal, state, or local job training programs.
- Students formerly under the care and placement responsibility of the state foster care agency.
Property managers must document which exception applies. A marriage certificate, TANF proof, or a letter from a job training program will typically satisfy this requirement.
When a Tenant’s Income Rises Above the Limit
A tenant who qualified at move-in does not lose the unit for earning more later. Under the available unit rule, a tenant can stay as long as the unit remains rent-restricted and the tenant’s income does not exceed 140% of the current applicable income limit.7GovInfo. 26 CFR 1.42-15 – Available Unit Rule For deep rent skewed projects, the ceiling is 170%.
Once a tenant crosses 140%, the unit becomes an “over-income unit.” It doesn’t immediately lose its low-income status, but the owner is on notice: the next comparable or smaller unit that becomes available in the same building must go to a qualifying low-income tenant. If the owner rents that next unit to someone who doesn’t qualify, every over-income unit of comparable or larger size in the building loses its low-income designation. That cascading result makes the available unit rule one of the costliest places to slip up on compliance.
Good-Cause Eviction Protection Throughout the Affordability Period
LIHTC affordability restrictions last a minimum of 30 years: a 15-year initial compliance period plus an extended use period of at least 15 more years.3Office of the Law Revision Counsel. 26 USC 42 – Low-Income Housing Credit Across that span, the property’s extended low-income housing commitment must prohibit the eviction or termination of tenancy of any low-income tenant except for good cause.8Internal Revenue Service. Revenue Ruling 2004-82
Federal law does not define good cause for LIHTC properties. That determination follows applicable state and local landlord-tenant law. Grounds that generally satisfy good cause include nonpayment of rent, material lease violations, property damage, and using the unit for illegal activity. An owner who fails to include the good-cause protection in the extended use agreement risks losing the tax credit for the building — not just for the current year but retroactively.
A landlord at a LIHTC property cannot simply decline to renew a lease at the end of its term without a legitimate reason. A non-renewal notice that does not cite a specific lease violation or other recognized cause may not hold up.
What Happens When a Property Breaks the Limits
Penalties for noncompliance fall on the owner. When a building fails Section 42’s income, rent, or occupancy requirements, the owner faces recapture of previously claimed credits plus interest, and future credits for the building can be forfeited. State housing finance agencies conduct regular compliance monitoring, and violations can trigger IRS reporting through Form 8823.
Typical failures include renting to tenants who exceed the income limits, charging rent above the allowable maximum, keeping incomplete certification files, and ignoring the available unit rule after a tenant’s income rises. A compliance failure does not directly cancel a current lease, but a property that loses its credits may struggle to maintain the building over time.