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What is Section 42?

Updated: 11/10/2022
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What is Section 42?
The Tax Credit Reform Act of 1986 created the Low Income Housing Tax Credit Program (LIHTC). The program regulations are under Section 42 of the Internal Revenue Code. The tax credit encourages developers to build affordable housing to meet the needs of the community. As a condition for receiving Housing Tax Credits, owners must keep the units affordable for a specified number of years. Affordable rents are defined and calculated based on Median Household Income figures published annually by the U.S. Department of Housing and Urban Development (HUD).

What does it cost?
The residents who live in Section 42 units must be income and program eligible. The rent that a Section 42 resident will pay is based on a fixed rental fee for the unit size that is lower than the average market rate rent in the area.
* Example of rent at 30% of income: Household with one full-time worker at $7.25/hour might pay $348 per month.

What does it offer?
Affordable rents that are lower than similar market rate units in the community.

What should I be prepared for?

  • It is difficult to identify which rental properties participate in the Section 42 program.
  • You will be asked to complete an application that requests information regarding your household composition, income, and student status. These factors will determine your eligibility for this program.
  • Qualified income levels are determined by the local office of the Department of Housing and Urban Development (HUD), based on two factors: 1) a percentage of the median household income for the county or metropolitan statistical area in which the development is located; and 2) the number of people in your household.
  • Your income level is based on the combined projected gross income, including income from assets, for the next 12 months of all household members 18 years of age and older.
  • You must re-certify your income and family size before you are offered a new lease. This process starts about 90 days before your lease renewal date.
  • The unit is being rented to you and those identified on the rental application. Any changes in household size or income must be reported in writing and may require that you reapply for eligibility.
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