The Low-Income Housing Tax Credit, established under the 1986 Tax Reform Act, provides an incentive to developers for affordable rental housing. The credit provides a dollar-for-dollar federal tax liability reduction for owners of newly constructed or substantially rehabilitated rental housing. Section 42 of the Internal Revenue Code and related regulations govern the Housing Tax Credit and establish compliance requirements, including qualified tenants income levels and maximum program rental rates.

As Idaho's designated Housing Tax Credit administrator, IHFA receives an annual Housing Tax Credit authority on behalf of the state. This annual credit authority is allocated through a competitive application process according to the Qualified Allocation Plan. Recipients of Housing Tax Credit allocations may claim the annual credit each year for 10 years.

A development's annual Housing Tax Credit eligibility is based upon depreciable real property costs applicable to the units designated for low-income tenants. The amount of credit allocated to a development is based upon either the lesser of credit eligibility, the amount necessary to fill the funding gap or the amount necessary to generate a reasonable return to the investor.