Kentucky Low-Income Housing Tax Credit (LIHTC) Program

The Low-Income Housing Tax Credit Program, or LIHTC, is one of the most important state resources currently in place for addressing affordable housing needs in Kentucky. Since its beginning in 1986, the program has served as a major financing resource for developing and rehabilitating affordable rental homes for low-income families, seniors, and persons with disabilities.

  

Kentucky’s LIHTC Program is critical in securing sustainable, affordable housing solutions to meet the state’s most vulnerable populations by providing tax credits as incentives to private sector investment.  

Kentucky LIHTC Program Overview 

The LIHTC Program provides tax benefits to private developers who agree to provide qualifying households with affordable rental housing with incomes below 60% of the AMI. Support for the program in Kentucky comes through both new construction and rehabilitation, with the main goal of long-term affordability for low-income renters.

 

The program is administered by the Kentucky Department of Housing and Building Codes, which certifies credit allocations, ensures project compliance, and provides general support to developers through the application and development process. 

Eligibility for the Kentucky LIHTC Program 

For Developers 

 

Developers looking to participate in the Kentucky LIHTC program must meet or exceed the criteria provided in the Qualified Allocation Plan (QAP). The eligible projects under this plan include (but are not limited to):

 

• New construction of affordable rental housing. 

• Rehabilitation projects that enhance the stock of available, affordable housing. 

• Mixed-use projects that combine residential and commercial components will also be qualified if they meet affordability criteria for the residential component. 
• The developers would agree to keep the units affordable for at least 15 years, with many projects, depending on the program-specific terms, going as high as 30 years. 

For Tenants 

 

Tenants of housing funded through the LIHTC program must have incomes at or below 60% of the Area Median Income(AMI). Rent limits are usually set at not more than 30% of the tenant’s income to ensure true affordability. This, therefore, allows service provision for a wide range of households—from families to seniors and persons with disabilities—to provide access to secure and affordable housing. 

Kentucky LIHTC Application Process 

The process of applying for LIHTCs in Kentucky is highly regulated, with a set pattern to ensure that credits are granted to projects that would have the most impact and are most needed.

 

Developers must:

 

• Application Submission: Submit an application with the developers’ detailed proposal, including the proposed project location, scope of development, design, and affordability. Proposals submitted shall be in accordance with Kentucky’s Qualified Allocation Plan, which outlines state priorities for the development of affordable housing. 

• Scoring and Project Selection: Each project proposal is thoroughly assessed and ranked against other proposals in a number of areas, such as geographic location, affordability, sustainability, and community impact. Projects that better match state housing needs and meet the various QAP criteria are first in line for receipt of the tax credit allocation. 

• Tax Credit Reservation: Upon selection, the Kentucky Housing Corporation awards and reserves tax credits that the developer may sell to private investors for equity in developing or rehabilitating units for affordable housing.  

• Final Approval and Compliance Agreement: This includes owners of selected projects executing a compliance agreement, which provides for the rent restrictions, tenant income qualifications, and other long-term affordability measures to be maintained throughout the project’s lifecycle. 

 

KHC monitors the application process for project completion to ensure that all program requirements and guidelines are adhered to.  

Kentucky LIHTC Program Compliance and Monitoring  

Upon completion and placement into service, a project automatically enters a compliance phase. This period requires developers to comply with the program’s long-term requirements on affordability and tenant eligibility.

 

The Kentucky Housing Corporation has to monitor the program for compliance, and it includes:

 

• Annual Reporting: Developers will be required to document continued compliance with the LIHTC regulations through annual reporting on rent levels, tenant incomes, and property conditions.  

• Physical Inspection: KHC periodically inspects LIHTC-funded properties to ensure that the units are decent under federal and state standards for safety and habitability. Both common areas and individual units are inspected under this program.   

• File Audits: Besides on-site inspections, KHC conducts file audits for tenants to verify their income eligibility and compliance with program requirements. 

• Non-compliance Penalties: Failure to comply with the requirements of the program can be subjected to the recapture of tax credits that may result in a financial penalty against the developer. If there are any issues in compliance, KHC cooperates with the developers to resolve the problem before it is reported to the IRS. 

LIHTC Program Impact in Kentucky 

The Kentucky LIHTC Program has provided immeasurable contributions to the state’s affordable housing climate. It has financed the development and preservation of thousands of affordable rental units in communities statewide. This program extends into significant economic impacts beyond the housing provided to low-income citizens through construction jobs, local businesses, and community revitalization efforts.

 

The program is vital in contributing to solving the state’s housing challenge and offers a more permanent solution for helping low-income people and families find accommodation.  

Challenges Faced by the Kentucky LIHTC Program  

Kentucky still experiences an acute shortage of affordable housing, with an acute section of the low-income population struggling to seek houses they can afford. The rapidly rising construction cost burden, combined with limited funding, has made the job of meeting the ever-growing needs of the population quite difficult for developers. The Kentucky Housing Corporation works to overcome these barriers by revising its Qualified Allocation Plan to ensure that projects selected within the state provide for the state’s most pressing needs in housing, including those in rural areas and the most affected areas. There also remains an ongoing need for cooperation among the public and private sectors in furthering the reach of available, affordable housing options throughout the state. 

Conclusion 

The Kentucky Low-Income Housing Tax Credit Program remains an important tool in the state’s effort to house the most vulnerable of its constituents. It does so by providing safe, affordable, and sustainable housing options through the partnerships of the Kentucky Housing Corporation, developers, and private investors.

 

With the growing demand for affordable housing, the LIHTC program will continue to be at the heart of Kentucky’s strategy to provide low-income families with safe, secure, and affordable homes.