Section 42 housing is privately owned rental housing built or renovated with federal Low-Income Housing Tax Credits, where units are set aside for tenants whose household income falls at or below a set percentage of the area median income (AMI), usually 60 percent, with rents capped by formula rather than tied to what you personally earn. The program takes its name from Section 42 of the Internal Revenue Code and has financed roughly 3.7 million units since 1986, making it the largest source of affordable rental housing in the country.1HUD User. Low-Income Housing Tax Credit (LIHTC) Property Level Data The rules on rent, student status, and what happens when your income changes are not what most people assume, so it pays to understand them before you apply.
How Rent Is Set
This is where Section 42 trips people up. Your rent is not based on your actual income. Unlike a Section 8 voucher, where tenants typically pay 30 percent of their own adjusted income, a LIHTC rent is a flat ceiling tied to the AMI for your location and the size of the unit. Two tenants in identical apartments pay the same maximum rent whether one earns $25,000 or $40,000.
The formula: gross rent, including a utility allowance, cannot exceed 30 percent of the imputed income limitation assigned to the unit.2Office of the Law Revision Counsel. 26 USC 42 – Low-Income Housing Credit Imputed household size is 1.5 people per bedroom, so a two-bedroom unit uses the income limit for a three-person household and a studio uses the one-person limit.
If you pay your own electric, gas, or water, the property has to subtract a utility allowance from the maximum rent it charges, so your out-of-pocket rent drops to leave room for utility bills within the overall cap. LIHTC rents are typically well below market rate, but they are not as deeply subsidized as project-based Section 8, where rent adjusts to each household’s actual earnings.
Who Qualifies by Income
Your household income has to fall at or below the limit assigned to the specific unit you’re applying for. Most Section 42 units are set at 50 or 60 percent of AMI. Some properties use an “income averaging” option added to the law in 2018, which allows individual units to be designated at 20, 30, 40, 50, 60, 70, or 80 percent of AMI as long as the project’s average stays at or below 60 percent.2Office of the Law Revision Counsel. 26 USC 42 – Low-Income Housing Credit If you’ve been told your income is too high for Section 42, ask whether the property averages income before giving up.
HUD publishes income limits every year based on Census Bureau survey data, adjusted for local wages and family size. The numbers vary dramatically by geography. Sixty percent of AMI in San Francisco is a completely different figure than 60 percent of AMI in rural Mississippi. You can look up the limits for your county or metro area on HUD’s income limits page.3HUD User. Income Limits For LIHTC properties specifically, HUD maintains a separate set of Multifamily Tax Subsidy Project income limits that account for statutory floors and hold-harmless provisions.
How Assets Factor In
Eligibility isn’t just about wages. Managers also review assets. If your household’s total net assets exceed $5,000, the property has to calculate imputed income from those assets using a HUD-published passbook savings rate. For 2026 that rate is 0.40 percent.4HUD User. 2026 HUD Inflation-Adjusted Values and Passbook Rate The higher of your actual asset income or the imputed amount gets added to your total annual income for the eligibility calculation. This rarely disqualifies anyone unless you have substantial savings or investments, but you will need to document every bank account and financial asset.
The Full-Time Student Rule
A household made up entirely of full-time students is generally ineligible for Section 42 housing regardless of income. This catches many adult students returning to school and couples who are both enrolled full-time. If any adult in the household is not a full-time student, the restriction does not apply at all.
The statute carves out five exceptions. An all-student household still qualifies if:2Office of the Law Revision Counsel. 26 USC 42 – Low-Income Housing Credit
- All adults are single parents with minor children, no one is claimed as a dependent by anyone else, and the children are claimed only by their parents.
- All adults are married and eligible to file a joint tax return.
- At least one member receives Temporary Assistance for Needy Families under Title IV of the Social Security Act.
- At least one member was previously in the care of a state foster care agency.
- At least one member is enrolled in a job training program funded under the Workforce Investment Act or a similar government program.
An unborn child counts as a non-student household member, which can qualify an otherwise all-student household. Student status gets verified every year during the compliance period, even at properties that are otherwise exempt from annual income recertification.
What Happens If Your Income Goes Up
One of the most common fears tenants have is losing the apartment after a raise. The rules are more forgiving than people expect. If your income was within the limit when you moved in, you don’t lose your status as a qualifying tenant later just because you start earning more. Your unit continues to count as a low-income unit so long as the rent stays within the restriction.5eCFR. 26 CFR 1.42-15 – Available Unit Rule
The trigger point is 140 percent of the applicable income limit. Once your income rises above that threshold, your unit is treated as “over-income,” and the available unit rule applies. The owner then has to rent the next comparable vacant unit to a qualifying low-income household before your unit loses its tax-credit status. You stay put at the same restricted rent. You are not evicted. The owner simply backfills elsewhere in the property to stay in compliance.
Annual Recertification
Most Section 42 properties recertify income around the anniversary of your move-in date. You will have to provide updated documentation of all income sources, assets, and household composition, and every adult signs a Tenant Income Certification form. One shortcut exists: at properties where 100 percent of the units are LIHTC-restricted, existing tenants can skip the annual income recertification, though student status still has to be verified every year.
Missing a recertification deadline or failing to produce documentation can force the manager to treat your unit as out of compliance, which puts the owner’s tax credits at risk. Expect persistent reminders, and respond promptly.
Eviction and Lease Protections
Section 42 tenants have stronger protections than many realize. The IRS has interpreted the statute to require “good cause” for any eviction or lease non-renewal at a LIHTC property.6Internal Revenue Service. Internal Revenue Bulletin 2004-35 Good cause generally means a legitimate reason such as nonpayment of rent, a serious lease violation, or criminal activity. A landlord cannot refuse to renew your lease just because the compliance period is ending or because they want to shift to market-rate tenants.
Even after a property’s extended use agreement terminates, the statute provides a three-year window in which no existing low-income tenant can be evicted without good cause, and no rent can be raised beyond the LIHTC formula.2Office of the Law Revision Counsel. 26 USC 42 – Low-Income Housing Credit The extended use agreement must also allow tenants who meet the income limits to enforce the property’s obligations in state court, giving you a private right of action if the owner violates the restrictions.
LIHTC properties are also prohibited from refusing to lease to someone who holds a Section 8 Housing Choice Voucher solely because they have a voucher.2Office of the Law Revision Counsel. 26 USC 42 – Low-Income Housing Credit You can use a voucher at a Section 42 property, and the voucher payment is not counted as part of the gross rent for compliance purposes. In some cases that combination leaves very little out-of-pocket cost.
Finding a Property and Getting on the List
No single website lists every available Section 42 unit with real-time vacancies, which is one of the program’s ongoing frustrations. A few resources narrow the search.
HUD maintains the LIHTC Database, a searchable tool covering projects placed in service from 1987 through 2023, with 2024 data expected in spring 2026.7HUD User. LIHTC Database Access You can search by state, city, county, credit type, and construction type. The database shows where properties exist but not current openings. Use it to identify properties, not as a rental listing.
Your state’s housing finance agency is usually the most useful resource, since each agency administers the credit allocations and monitors compliance. Many agencies maintain their own property directories with management contact information. Local housing authorities can also point you to Section 42 properties in your area and often know which waitlists are open.
Each LIHTC property runs its own waitlist. There is no central application. Once you identify properties, contact the management company directly, and apply to several to improve your chances.
What to Expect When You Apply
Applying takes more documentation than a typical market-rate rental because the property has to verify your income, assets, household composition, and student status before certifying you as eligible. Expect to produce pay stubs, tax returns, bank statements, Social Security benefit letters, and verification of any other income source. Self-employed applicants typically need a year-to-date profit and loss statement along with the prior year’s return.
Third-party verification is standard: income verification generally has to come directly from the employer or institution rather than from you. When third-party verification isn’t available, consecutive recent pay stubs serve as a backup. For assets, checking accounts generally require six consecutive bank statements, and savings accounts need the most recent statement.
Waits vary widely. In high-demand metros, one to five years is common. Rural areas and newer developments can have shorter waits or immediate openings. Some properties close their waitlists when the list gets too long and reopen them periodically, so checking back is worth the effort.
Standard tenant screening still applies. LIHTC properties run background checks, review rental history, and pull credit. Meeting the income limit gets you through the eligibility door, but the property can still deny your application for the same reasons any landlord would, such as prior evictions or a pattern of unpaid rent. Screening criteria have to follow fair housing law and be applied consistently to every applicant.