What are “tax-exempt bonds” in relation to LIHTC?

Tax-exempt bonds are significant in the context of the Low-Income Housing Tax Credit (LIHTC) program because they provide a source of financing for affordable housing projects. Specifically, these bonds are issued by state or local governments, and the proceeds from their sale are used to finance the development of affordable housing units. This financing method allows developers to access capital at favorable interest rates due to the tax-exempt status of the bonds, which can lead to lower overall project costs.

When a project is financed with tax-exempt bonds, it becomes eligible for LIHTC incentives, providing additional benefits to both developers and investors. The combination of tax-exempt financing and low-income housing tax credits creates a powerful mechanism to stimulate the development of affordable housing. This allows for the construction and rehabilitation of housing that is accessible to low-income individuals and families, addressing a critical need in many communities.

In summary, the correct answer captures the essence of tax-exempt bonds specifically supporting affordable housing initiatives, qualifying for LIHTC, and directly contributing to the affordability of housing options for lower-income populations.