Connecticut Low-Income Housing Tax Credit (LIHTC) Program

Tax credits have become one of the most important means of creating affordable housing in Connecticut. They enhance developers’ equity and attract investors to participate in affordable housing initiatives run statewide. The federal or state government uses these tax credits to create affordable housing under the LIHTC program.

 

CHFA manages the Federal Low-Income Housing Tax Credit (LIHTC) program and the State Housing Tax Credit Contribution (HTCC) program. Developers sell these credits to generate equity for their projects, often to corporations or investors. In return, the developer must set aside a percentage of units for low-income residents, and unit affordability must be maintained for 40 years (LIHTCs only).

 

Application for tax credit financing is highly competitive. The LIHTC allocations are based on the degree to which the project complies with CHFA’s Qualified Allocation Plan (QAP) requirements. The QAP advances the policies of the state’s housing policy.

 

First-time tax credit financing applicants should be aware that attending one of the annual training sessions by CHFA is highly recommended.

   

Connecticut Low-Income Housing Tax Credit Program    

The Connecticut low-income housing tax credit (LIHTC) program incentivizes developers to acquire, rehabilitate, or construct new low—or moderate-income housing with the promise of federal tax credits. The credits can then be sold to corporations or investor groups to raise equity for a project.

 

State support is available for housing developers who need pre-development cost assistance for housing construction, rehabilitation, or renovation for low- and moderate-income tenants, alone or with families. Through both existing multifamily property owner loans and grants to developers of new multifamily projects, the state provides gap financing, which will increase the supply of safe, decent, and affordable rental housing statewide.

 

On the other hand, the state also provides funds with technical assistance for towns under 50,000 in population via the CDBG-Small Cities Program. Such monies fund activities that address local community needs and, by extension, promote affordable housing and economic development principally for low-and moderate-income tenants.

 

The Connecticut Housing Finance Authority (CHFA) can assist first-time homebuyers by applying for a mortgage, advising, and maintaining a checklist for purchasing a home. It also allows property owners and prospective renters to advertise and search for free rental housing statewide. There is also a service dedicated to assisting senior citizens and persons with disabilities in finding appropriate housing.

   

LIHTC Allocation in Connecticut    

The amount of tax credits to be allocated is based on the qualified program-eligible costs and the percentage of affordable units created during the development process. These LIHTCs are either allocated from the state’s credit ceiling or, in the case of transactions using tax-exempt bond financing, from a federal allocation pool.

 

9% LIHTC   

 

Connecticut’s credit ceiling is about $10 million a year. Consequently, the award was reached through applications that exceeded Connecticut’s 9% LIHTC state ceiling through competitive application procedures based on program set-asides, the point scoring system, and the ranking process per the QAP. These competitive rounds are scheduled annually with specific application deadlines. The Connecticut Opportunity Map was adopted with the QAP in 2022 and is still in current use. CHFA will use this same map tool to rank all development proposals for the award or no points in the Opportunity Characteristics scoring category.

    

4% LIHTCs with Tax-Exempt Bond Financing   

 

All 4% LIHTC transactions should comply with CHFA procedures, policies, standards, and guidelines, but are not limited to the QAP. Requests associated with other competitive resources through the Connecticut Department of Housing (DOH) will be evaluated by CHFA with DOH.

 

After successfully researching all required data, CHFA will send a 42(m) letter of Connecticut LIHTC certification certifying the development’s qualification to section 42 of the IRS Code and qualification for LIHTCs that are not per capita. Applications with pre-authorized, tax-exempt bond volume requested from the state of Connecticut shall be forwarded through CHFA’s review and approval process.    

   

State Housing Tax Credit Contribution (HTCC) Program   

The Connecticut HTCC program is designed to help nonprofit developers build more affordable housing and give local businesses a chance to invest in the projects. The CHFA allocates up to $10 million in state tax credits annually under the HTCC program to nonprofits developing very low-, low-, and moderate-income housing in Connecticut.

 

Private businesses can buy and apply the tax credits against their corporate tax. The nonprofit developers then use the money for their affordable housing projects. Funding through HTCCs has supported an average annual development of 650 affordable units and often gap financing that allows many projects to advance.

 

The HTCC program assists the CHFA mission to provide residents with high-quality, affordable housing and nurtures the relationship between nonprofit developers and the business community.   

   

LIHTC Compliance in Connecticut     

Those developments in the state that have been awarded federal low-income housing tax credits are administered by the CHFA. The LIHTC program in Connecticut has been codified under § 42 of the Internal Revenue Code, 26 USC § 42, for providing a tax incentive in the form of tax credits for attracting investment capital into the affordable housing stock. Thereafter, the developments shall comply with certain requirements for a minimum duration of 15 years.

 

CHFA has contracted with Spectrum Enterprises to complete the LIHTC compliance monitoring in Connecticut. Noncompliance will be reported in a noncompliance letter to the owner. The owner must be given at least 30 days to correct noncompliance. CHFA must report noncompliance to the IRS on the IRS Form 8823. Tax Credits can be lost or recaptured if program regulations are violated.

 

Please refer to the most recent Qualified Allocation Plan in Connecticut for more detailed information on LIHTC compliance.