Tax credit apartments are privately owned rental units where the landlord agreed to cap rents and limit tenancy to lower-income households in exchange for federal tax credits. The program behind them, the Low-Income Housing Tax Credit under Section 42 of the Internal Revenue Code, finances roughly 90 percent of new affordable rental units built in the United States each year. The buildings look like any other apartment complex on the block. What sets them apart is a binding agreement the owner signed with a state housing agency to keep a share of units affordable, with rent tied to local income data rather than your paycheck.1Office of the Law Revision Counsel. 26 USC 42 – Low-Income Housing Credit
Who Qualifies to Rent One
Your household income has to fall below a ceiling tied to the Area Median Income (AMI) for your county or metro area. HUD publishes those figures annually, and the exact cap depends on which “set-aside” the property elected when it was built.2HUD USER. Income Limits The two traditional options are the 20-50 test, where at least 20 percent of units are reserved for households earning no more than 50 percent of AMI, and the 40-60 test, where at least 40 percent of units serve households at or below 60 percent of AMI.1Office of the Law Revision Counsel. 26 USC 42 – Low-Income Housing Credit
A newer option, the average income test, lets developers designate individual units at income levels ranging from 20 percent to 80 percent of AMI, as long as the average across all restricted units stays at or below 60 percent.1Office of the Law Revision Counsel. 26 USC 42 – Low-Income Housing Credit Some properties now include units that fit moderate-income households who would not have qualified under the older tests.
Applying is paperwork-heavy. Plan on producing several months of consecutive pay stubs, W-2s, and recent federal tax returns. Management will also review bank statements, certificates of deposit, and investment accounts. Income is calculated on a gross basis before taxes or deductions, and asset income like interest, dividends, or rent from property you own can be counted. Standard screening usually includes a credit check and a criminal background review. Falsifying anything on the application can be treated as fraud.
The Full-Time Student Rule
A household made up entirely of full-time students generally cannot qualify. For this rule, someone counts as a full-time student if they attended school for any part of five months in the calendar year, using the school’s own definition of full-time. Several exceptions preserve eligibility for student households that still fit the program’s purpose:1Office of the Law Revision Counsel. 26 USC 42 – Low-Income Housing Credit
- All adult members are single parents (and none is claimed as a dependent by someone else) with children in the household.
- Any household member receives Temporary Assistance for Needy Families (TANF) benefits.
- Any member was previously in foster care under a state agency.
- Any member is enrolled in a job training program funded under federal, state, or local law.
- All adult members are married and entitled to file a joint federal return.
How Rent Is Set
Rent in a tax credit apartment is not calculated from what you personally earn. Instead, the maximum rent for a unit cannot exceed 30 percent of the imputed income limitation for that unit, derived from whichever AMI percentage the property elected and adjusted for bedroom count.3Office of the Law Revision Counsel. 26 USC 42 – Low-Income Housing Credit2HUD USER. Income Limits A unit designated at 60 percent of AMI has its rent capped at 30 percent of what a household at 60 percent of AMI would earn, regardless of who is actually living there.
This is one of the most misunderstood parts of the program. If you earn well below the income ceiling, you still pay the same rent as someone right at it. A tenant making $25,000 and a tenant making $40,000 in the same unit pay the same amount. For households at the lower end of the eligible range, the rent can still feel tight.
The 30 percent cap covers rent and utilities together, not rent alone. If you pay your own electric, gas, or water, the property subtracts a utility allowance from the maximum rent. Owners set that allowance using methods approved by the state housing agency, often based on HUD’s utility cost data or on actual consumption in comparable units. The rent printed on your lease will therefore be lower than the published maximum whenever you pay utilities directly.
How This Differs From Section 8
People often mix up LIHTC apartments with Section 8, and the difference matters for your budget. In a tax credit apartment, rent is a fixed cap set by formula. It does not adjust to your paycheck. With a Section 8 Housing Choice Voucher, you pay roughly 30 percent of your actual income and the voucher covers the rest of the market rent. Section 8 flexes with your finances; LIHTC does not.
Eligibility thresholds differ as well. Section 8 vouchers generally target households at or below 50 percent of AMI, often with preference for those at 30 percent or below. LIHTC apartments reach up to 60 percent of AMI under the traditional tests, or up to 80 percent under the average income test. The two programs can also stack: some tenants use a Section 8 voucher to pay the rent at a LIHTC property, which brings the effective cost down for very low-income households who would still struggle at the capped rent.
What Happens if Your Income Goes Up
A raise will not cost you your apartment. As long as you were income-eligible when you moved in and your unit remains rent-restricted, you can stay even if your household earnings climb past the original limit. You have real headroom: income can rise to 140 percent of the applicable income limitation before anything happens at all.4eCFR. 26 CFR 1.42-15 – Available Unit Rule
If you cross that 140 percent threshold, you still don’t have to leave. The owner then has to follow the “next available unit rule,” meaning the next comparable vacant unit in the building must be rented to an income-qualified household. As long as the owner does that, your unit continues to count as a low-income unit and you keep your lease.4eCFR. 26 CFR 1.42-15 – Available Unit Rule Your unit only loses its low-income status if the owner instead rents a comparable available unit to someone who doesn’t qualify.
Most properties recertify income every year. You will submit updated pay stubs, tax returns, and asset documentation, much like the original application. Missing the recertification deadline or failing to return paperwork can put your tenancy at risk, so treat those notices seriously.
Tenant Protections
LIHTC tenants have stronger eviction protections than many renters realize. Under IRS Revenue Ruling 2004-82, the extended use agreement every LIHTC property signs must prohibit evicting or terminating a low-income tenant without good cause throughout the affordability period.5Internal Revenue Service. Revenue Ruling 2004-82 A landlord cannot decline to renew your lease because a higher-paying applicant walked in or because they want the unit back. They need a legitimate reason, such as nonpayment of rent, serious lease violations, or illegal activity.
The Violence Against Women Act also applies to LIHTC housing. Under the 2013 VAWA reauthorization, a landlord cannot deny housing to an applicant or evict a tenant based on their status as a survivor of domestic violence, dating violence, sexual assault, or stalking. The IRS has not issued detailed regulations, so enforcement generally runs through state housing agencies and varies by state.
How to Find and Apply
HUD keeps a searchable national database of LIHTC properties that lets you filter by state and city.6HUD User. LIHTC Database Access Most state housing finance agencies also publish their own property lists and search tools. A HUD-approved housing counseling agency can help if the search feels like a lot.
Applications go directly to the property’s management office, not to any government agency. Expect a processing fee to cover background and credit checks; the amount varies by property and state. Many properties keep waitlists, and depending on local demand the wait can run from a few weeks to several years. The process ends with an in-person meeting and a Tenant Income Certification form, which becomes the official legal record of your eligibility. After you move in, an annual recertification confirms your household still meets the program’s income and composition rules.