What is the difference between the "9% credit" and the "4% credit" in LIHTC?

The distinction between the "9% credit" and the "4% credit" in the Low-Income Housing Tax Credit (LIHTC) program is based on the type of projects they apply to and how they are allocated.

The 9% credit is primarily allocated for new construction or substantial rehabilitation of affordable housing projects. It offers a larger credit percentage, which is intended to incentivize the development of new housing and the significant upgrading of existing properties to meet affordable housing standards. Because this credit is more substantial, it plays a critical role in fostering new affordable housing developments in areas where the need is pressing.

On the other hand, the 4% credit is generally available for acquisitions of existing buildings or for developments that qualify for tax-exempt bond financing, which can include new construction as well. This credit has a lower percentage, reflecting its focus on encouraging the rehabilitation or acquisition of already existing properties rather than new developments. The bond financing aspect adds another layer, allowing certain projects to receive additional financial support.

Understanding these differences is fundamental for practitioners in the field, as it shapes project planning and financing strategies in the affordable housing sector.