9% Tax Credit
The larger, competitive form of the Low-Income Housing Tax Credit, worth about 70% of a building's qualified costs in present value and awarded by states from a limited annual supply.
What Is the 9% Tax Credit?
The 9% tax credit is the deeper of the two subsidy levels in the Low-Income Housing Tax Credit (LIHTC) program. Section 42 of the Internal Revenue Code describes it as a “70 percent present value credit.” Over its 10-year credit period, it is meant to be worth about 70% of the cost of the affordable portion of a building, measured in today’s dollars.
It goes to new construction and to substantial rehabilitation, which the law treats as a new building, when the building is not “federally subsidized.” Under Section 42, that means it is not financed with tax-exempt bonds. Credits for buying an existing building, and for bond-financed projects, come at the lower 4% rate.
How It Works
The annual credit equals the applicable percentage times the building’s qualified basis. Qualified basis is the building’s eligible basis, meaning its depreciable development costs, multiplied by the share of the building that is affordable (the applicable fraction).
The IRS publishes the applicable percentage monthly, based on federal interest rates. A minimum rate, first enacted in 2008 and made permanent by Congress in 2015, guarantees that it is never less than 9% for qualifying new buildings. That is why practitioners call it the 9% credit.
These credits are scarce. Each state receives an annual ceiling based mainly on population. Public Law 119-21, signed July 4, 2025, raised it by 12% for calendar years beginning after December 31, 2025. States award the credits through a competitive Qualified Allocation Plan and may give a project only as much as it needs to be financially feasible.
Developers rarely use the credits themselves. They sell them to investors, and the money raised, called tax credit equity, pays for construction.
Example
Suppose a new building has a qualified basis of $10 million. At 9%, it generates $900,000 in credits a year for 10 years, or $9 million in total. If investors paid, say, 85 cents per dollar of credit, the project would raise about $7.65 million in equity. With that much equity, the project needs far less debt.
9% vs. 4% Credit
| 9% credit | 4% credit | |
|---|---|---|
| Present-value target | About 70% of qualified basis | About 30% of qualified basis |
| How awarded | Competitive, from the state’s annual ceiling | Comes with tax-exempt private activity bonds |
| Typical use | New construction, substantial rehabilitation | Bond-financed projects, acquisition |
The 9% credit can cover more of a project’s cost, so it can support deeper affordability or smaller projects. Because it is awarded competitively from a capped supply, it is also harder to obtain.
Sources
- 26 U.S. Code § 42 — Low-income housing credit (Cornell LII) (opens in a new tab)
- Public Law 119-21, § 70422 — Permanent enhancement of low-income housing tax credit (GovInfo) (opens in a new tab)
- IRS — IRC §42 Low-Income Housing Credit Audit Technique Guide, Part I (rev. August 2015) (opens in a new tab)
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