The Congress of the United States has mandated an opportunity permitting taxpayers to reduce or even eliminate their federal income taxes. It's important to understand that we're not talking about another tax loophole that may or may not be ruled valid, but a program enacted as law by Congress as part of the Tax Reform Act of 1986 and PERMANENTLY EXTENDED by Congress in the Omnibus Budget Reconciliation Act of 1993. This Congressionally mandated program is called the Low Income Housing Tax Credit ("Federal Housing Tax Credits") which has its own Tax Code-Internal Revenue Code Section 42.
The Tax Credits are claimed by the owners of residential properties that are rented to low to moderate income families at below market rates. These property owners can take advantage of the Tax Credits and various government subsidies to create positive cash flow.
A Tax Credit is not a tax write-off, but a bottom-line dollar-for-dollar reduction of your income tax. A Tax Credit is just like a dollar in the bank that you would use to pay your taxes with. Regardless of your income level, taxpayers using Tax Credits can reduce taxes on earned income by as much as $10,750 each year for the next ten years. Taxpayers with passive income can eliminate their entire federal tax obligation. Another feature of Tax Credits is that they may be bequeathed or transferred by sale or assignment. As part of an estate, they add value without creating equal tax liability, therefore, senior investors may find them extremely attractive, even considering their 10 year payout.
If you haven't heard about Tax Credits, don't be surprised, many people haven't. WHY?... It's because of their limited availability. The federal government authorizes each state only $1.25 in Tax Credits annually, for every man, woman and child. Nationwide, that is approximately $330 million a year. As a taxpayer, if you have the opportunity to acquire Tax Credits, don't wait! It is an opportunity that won't last long!