Income-Restricted Apartments: How Tax Credit Housing Works

1What makes an apartment income-restricted

The Low-Income Housing Tax Credit gives developers a tax benefit for building or rehabilitating rental housing that stays affordable for decades. In return the owner promises two things: to charge no more than a set rent, and to rent those units only to households whose income is under a set limit. Several other programs work in similar ways, and your local housing agency or state housing finance agency can tell you which ones apply near you.

Owners elect one of two tests when they apply for the credit. Under one, at least 20 percent of the units go to households at or below 50 percent of the area median income. Under the other, at least 40 percent go to households at or below 60 percent. A third option, income averaging, lets a property serve a mix of households between 20 and 80 percent of the median, averaging no more than 60 percent. Many properties reserve all of their units, not only the minimum, which is why a whole building can be income-restricted.

2How the rent is set

Rent in a tax credit apartment is capped, not based on your income. The maximum is generally 30 percent of the income limit the owner chose for that unit, adjusted for the number of bedrooms. For a 60 percent unit that works out to about 18 percent of the area median income. Many caps include an allowance for tenant-paid utilities, so the rent on the lease may be a bit lower than the cap.

Two practical points follow. A tenant who earns less than the limit still pays the same rent as one who earns more, so for a household with very low income the rent can be more than a third of what it earns. And actual rents are often below the cap, particularly where market rents are low, so compare the listed rent with the cap before you assume it is a bargain.

3Who qualifies

Qualifying depends on total household income compared with the limit for your household size and county, which HUD publishes each year in its income limits tables on huduser.gov. The management company counts the income of every adult in the household, including wages, benefits and other regular income, and many ask about assets. Some properties also set a minimum income, often a multiple of the monthly rent, and run credit and background checks as any landlord would.

The tax credit also has a rule for full-time students, which generally bars households made up entirely of full-time students, with exceptions such as parents who are raising a child or students who receive certain assistance. Ask the manager about the student rule if it applies to you.

4How to apply

Apply directly to the property, not to HUD. Find properties through your state housing finance agency's listings, HUD's LIHTC database on huduser.gov, your local housing authority and 211. HUD's database does not show vacancies, so call the leasing office, ask whether it has units or a waiting list, how long the wait is and what documents it needs.

Have documents ready: ID and Social Security numbers for household members, pay stubs or benefit award letters, recent bank statements and the names of your landlord references. Apply to several properties at once, because waiting lists are common and move at different speeds. Keep your contact information current, since a property can drop an applicant it cannot reach.

Once you move in, the property verifies your income every year. Rent can change when the area median income changes, and many properties let households stay if their income rises modestly. Ask the manager about your property's policy before you sign.

5Comparing properties before you apply

Two buildings with the same income limit can be very different places to live. Compare the listed rent with the cap and ask whether it includes any utilities, since a lower rent with tenant-paid heat can cost more than a higher rent that includes it. Ask about application fees, deposits and pet or parking charges, which are not capped. Check how far the property is from work, transit and school, and ask whether it has accessible units if anyone in your household needs one. A call to the leasing office tells you more than a listing.

6If you are turned down or put on a list

Ask for the reason in writing, because a missing document is an easy fix and an income error may be correctable. If you are told that the list is closed, ask when it will reopen and how you will hear. Other types of income-restricted housing are worth asking about too, including HUD-supported housing for people 62 and older and for people with disabilities, and housing run by your local housing authority. Call 211 and ask for a housing counselor or navigator in your area, since many keep up-to-date lists of properties that are accepting applications.

7How it differs from other housing help

Swipe sideways to see the whole table.

The programs can overlap. Many tax credit properties accept vouchers, and a household with a voucher can rent there if it meets the property's rules. Our guides to Section 8 housing assistance and public housing explain how those programs work. If a property turns you away for a reason that sounds unfair, our guide to fair housing rights explains where to complain.

9What differs by property

Income limits, rents, screening and waiting lists differ by property and county, and each property decides each application. This is general information and not legal advice. Your state housing finance agency or a legal aid office can help with a dispute.