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What Are Section 42 Apartments? Benefits, Eligibility, Application

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We live in an unpredictable world with financial and natural disasters, along with an ongoing pandemic that disrupts productivity and profits for many industries.

Many people struggle to pay their monthly rent during these challenging times and risk being homeless.

You should consider government housing programs and ask around your community about Section 42 apartments if you are facing similar hardships.


What Is Section 42 Housing?

Section 42, also known as the Low-Income Housing Tax Credit (LIHTC), is a housing program that benefits property owners with tax credits and low-income tenants with affordable and quality housing.

The Internal Revenue Service oversees Section 42, and the housing program’s name refers to a section of the IRS tax code.

The income-based housing program supports the construction or rehabilitation of affordable rental units every year by granting tax credits to private owners and developers who provide inexpensive apartments.

It requires participating property owners to make specific units in their apartment buildings available for low-income renters, allowing owners to reduce their taxes.

Property owners have to maintain these low-income units in good, safe conditions with fixed rent rates set by the U.S. Department of Housing and Urban Development (HUD).

The apartment units must remain affordable for at least 30 years, and property owners and investors can claim their tax credits over 10-year periods.

Section 42 assists people who earn 40%-50% of their area’s median income (AMI).

Eligible tenants don’t receive direct government assistance, but the tax credits incentivize property owners to provide low-cost rental housing.

The Tax Reform Act of 1986 established Section 42 to stimulate low-income rental housing options and pushed the construction or rehabilitation of over 2 million units since its founding.

Section 42 vs. Section 8 Housing?

Section 42 and Section 8 are government programs created to provide affordable housing for eligible Americans who struggle with low incomes, but they achieve their mission through different methods.

One of the main differences is how the government assists renters in each program.

Section 8 is a government-subsidized program that pays a portion of the rent for low-income tenants, while Section 42 isn’t and deals with property owners primarily.

Section 42 assists landlords directly by providing them with tax cuts for making some of their living units available for low-income tenants.

That allows landlords to lower the rent for some of their apartments.

Renters then have to go through a traditional application with landlords.

Tenants living in Section 8 housing get direct government assistance in the form of vouchers that they can use to pay most of their rent.

Both programs are income-based but also have different rules regarding their rent prices.

Fixed rent rates are a principal feature of Section 42 housing, meaning that tenants’ income adjustments won’t change the rent prices established by HUD.

Those living in Section 8 housing usually use around 30% of their income to pay for rent, and the government covers the rest, but adjustments on their income can affect their rent cost.  

Section 42 usually allows higher income limits for tenants and is generally easier to qualify for than Section 8.

Tenants who receive Section 8 subsidized housing assistance can move anywhere and keep using their vouchers.

Section 42 renters can only enjoy the benefits with their current lease because the tax credit involves their landlords, not them.

How Is LIHTC Rent Calculated?

The local HUD establishes LIHTC rent prices and uses your income situation, family size, and the AMI to determine the value.

Your monthly rent won’t change during your lease if your income increases or decreases, but you should notify your landlord if you start making more money.

You may get disqualified and have to move if you earn more than the income limit.

Section 42 tenants must reapply before acquiring a new apartment lease because their income and family size can fluctuate each year.

Who Is Eligible for Section 42 Housing?

People who earn between 30% and 60% of the AMI and can prove that they can’t afford high rent costs are eligible for Section 42 housing, but there are no guarantees that they’ll receive the assistance.

You should expect to provide information about your income, financial assets, and family size in the application process.

Section 42 Housing Income Limits

Section 42 housing income limits are also established by HUD for different areas to ensure that people who need rental assistance the most can receive it.

Income limits vary for different regions and earning more than them will prevent you from qualifying for Section 42 housing.

Section 42 A Viable Option For Senior Housing

Some developers use Section 42 tax credits to build low-income senior housing communities with nice amenities and full-time service for elder family members.

These senior housing communities are very likely to be around for a while because Section 42 requires participating developers to operate and maintain their buildings for a minimum of 30 years.

Can College Students Live In Section 42 Housing?

Your household may not be eligible for Section 24 housing if you live with too many full-time students, but there can be exceptions.

College students may be eligible for Section 24 housing if they meet the requirements, receive Temporary Assistance for Needy Families (TANF), are single parents with dependents, left a foster care program within the last six years, and more.

Students who live with other qualifying adults who are not students might also qualify.

How Much Will My Rent Cost With Section 42 Housing?

Your income and AMI will determine how much you pay for rent with Section 42 housing, but you will never pay more than 30% of your annual income.

Your monthly rent will also remain the same throughout your lease, even if your income increases or decreases.

Who Decides Which Buildings Get Section 42 Housing?

The IRS oversees the Section 42 housing program and chooses developers who compete against each other to apply for tax credits.

How To Find Section 42 Housing

Your local Public Housing Authority (PHA) can help you find Section 42 housing assistance around your community.

They can also give you additional details about income limits in your region and other housing programs that can help you.

Some apartment listings may also mention Section 42 housing units.

How To Apply For Section 42 Housing

Applying for Section 42 housing is similar to a standard rental application.

You will have to contact the property manager or landlord of the apartment and make sure that they are part of the Section 42 housing program.

Be ready to provide income information, prove that you earn less than the AMI, and pass a background check.

Section 42 Tax Credit Program

The Section 42 Tax Credit Program incentivizes property owners and developers to boost the construction and maintenance of low-income apartment buildings.

Property owners in every state compete against each other for a beneficial tax cut.

Understanding and Qualifying for Section 42 Tax Credit

The IRS grants tax credits to real estate developers who demonstrate that their projects are essential for the state’s housing needs.

Developers who receive the tax credit need to make a percentage of their apartment buildings affordable for low-income renters.

They also have to keep rent costs 30% below the tenant’s income.

Investors can claim their tax credits every 10 years.

Noncompliance with the Section 42 Tax Credit requirements and failure to keep their units properly maintained for a minimum of 30 years can cause landlords to lose their tax credits.

Benefits of Living in Section 42 Housing

Living in Section 42 housing can help you save money for other necessary expenses like food, healthcare, public transportation, and more.

Many Section 42 apartments are also located in downtown areas within walking distance of many job opportunities.

The housing program also ensures regular maintenance for its apartments by requiring landlords to keep up with them or risk losing their tax credits.

They are responsible for providing safe, comfortable housing conditions and checking tiles, appliances, fire alarms, sprinklers, and other amenities.

Tenants are usually responsible for paying their electric bills under Section 42, but the program typically includes other utilities like trash, water, or recycling with the rental cost.

Wrap Up

You should not hesitate to reach out to your local PHA’s about Section 42 apartments and other affordable housing units in your area if you struggle to pay your monthly rent.

The application process can be time-consuming and frustrating, so it’s best to start as soon as possible.

Other organizations like churches and charities might assist also.

Always provide PHA’s reliable contact information where you can be easily reached and be ready to present documentation about your income, family size, background, and more.

Section 42 and Section 8 programs exist to provide affordable housing for low-income households, but they operate differently.

Property owners get direct government assistance with tax breaks for providing affordable housing under Section 42, while the government helps tenants pay for rent under Section 8.

You can increase your chances of gaining rental assistance by applying to multiple affordable housing programs at once.

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