What is the low-income housing tax credit (LIHTC), and can you buy it?

The low-income housing tax credit (LIHTC, §42) is the federal government's main tool for encouraging affordable rental housing. People searching for it are often looking for a credit they can purchase to reduce federal tax. This page explains how it works and how it differs from the credits that can be bought.

How the credit works

• State allocation. State housing agencies allocate the credits to qualifying rental projects. A developer cannot claim LIHTC without an allocation (or tax-exempt bond financing that carries one).
• Ten-year credit period. The credit is claimed over ten years once the building is placed in service. The 9% and 4% names are shorthand for credits designed to have a present value of roughly 70% and 30% of qualified basis.
• Compliance. The property must stay in compliance for at least 15 years, with rent and income restrictions. Noncompliance can cause recapture of credits already claimed.
• Who holds it. Owners are usually partnerships. Investors, often corporations, typically acquire interests in those partnerships and receive the credits as partners.

Why LIHTC is not a purchasable credit

§6418 lets certain credits be sold for cash to an unrelated buyer. The IRS transferable-credit list covers the clean energy credits (including §48E, §45Y, §45X and §48), but not the §42 housing credit. A buyer therefore cannot purchase LIHTC from an owner as a standalone credit the way it can buy a §48E credit; the usual route is to become a partner in the owning entity, which is a different transaction with different risks. Veritas does not offer investment interests. For the structure, see tax credit syndication, and for one state's program see the California LIHTC guide.

	LIHTC (§42)	§48E investment credit
Purchasable under §6418?	No	Yes
How a buyer gets it	Partnership interest in the owning entity	Credit purchase agreement with the project owner
Timing	Over a ten-year credit period	One credit for the year the facility is placed in service
Main risks	Compliance and recapture over the compliance period; partnership-level risk	Five-year recapture, foreign-entity rules, wind and solar deadlines
Passive limits	Individuals and closely held businesses face the passive activity rules for both; see passive activity rules.

If you want a credit you can purchase

Buyers who want to reduce federal tax with a purchased credit, without becoming a partner in a project, usually look at §48E first. It has the broadest pool of projects on the transferable list. Read the §48E buyer guide, the guide to which federal ITC applies and which credits are transferable. Discuss any purchase with your CPA and counsel.

Educational information only, not tax, legal or investment advice, and no outcome is promised. Rules and figures were checked against the cited sources on October 31, 2026; they change, so confirm with your CPA and counsel before acting. Veritas does not offer or solicit investments. See our disclaimer.