Repeal the Low-Income Housing Tax Credit

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

Billions of Dollars 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2023–
Decrease (-) in the Deficit -0.2 -0.9 -2.3 -4.2 -6.1 -8.2 -10.3 -12.6 -14.9 -17.1 -13.7 -76.8

Data source: Staff of the Joint Committee on Taxation.

This option would take effect in January 2023.

Real estate developers who provide rental housing to people with low income may qualify for low-income housing tax credits (LIHTCs), which are designed to encourage investment in affordable housing. The credits, which can be used to reduce the federal income tax liability of the developer or an investor in the project over a period of 10 years, cover a portion of the costs of constructing new housing units or substantially rehabilitating existing units. For a property to qualify for the credits, developers must agree to meet two requirements for at least 30 years. First, they must set aside a certain percentage of rental units for people whose income is below a certain threshold. Second, they must agree to limit the rent they charge on the units occupied by low-income people.

This option would repeal the LIHTC, although real estate investors could continue to claim credits granted before 2023 until those credits expired.