Rhode Island joins 26 other states in offering state low-income housing tax credits to bridge the growing affordable housing gap in the United States.

Rhode Island Governor Daniel McKee recently signed the FY24 RI Ready budget legislation (House Bill 5200) aimed at making key investments in housing, economy, child care, and local businesses, including the establishment of a statewide low-income housing tax credit (“LIHTC”) program, the first such LIHTC program in the State.

The new state LIHTC program will provide an additional tax incentive for developers to expand subsidized housing options for low-income households in the State through the competitive 9% LIHTC process with an annual allocation cap of $30 million. The State LIHTC can be taken over five years and allows the taxpayer to redeem 90% of the value of the credit.

The federal LIHTC was created by the Tax Reform Act of 1986, giving State and local LIHTC allocating agencies the authority to issue tax credits for the acquisition, rehabilitation, or new construction of rental housing targeted to lower-income households. These credits can then be sold by developers to investors, allowing developers to bridge the gap between construction and development costs, and allowing investors to offset their federal and state tax liability. The LIHTC program has successfully created affordable housing units across the country, and Rhode Island has used the federal program since 1986.

State LIHTC programs are modeled after the federal LIHTC program. They are offered to affordable developers through a competitive (9%) process and/or non-competitive (4%) tax-exempt bond process, depending on the state. In the case of Rhode Island, State LIHTC will be offered only through the competitive process.

State LIHTC investments across the country have proved to leverage additional financing resources and close financing gaps needed to finalize development proposals and begin construction on new housing developments. The new program is another step toward making more affordable housing available in Rhode Island and the Northeast. New Hampshire is the only holdout state in the Northeast that has not established a state LIHTC program.