Section 42 Housing Qualifications and Income Limits

To qualify for Section 42 housing, your household income must fall at or below the area median income (AMI) percentage the property elected when it was built — 50%, 60%, or in some cases up to 80% — and your household cannot consist entirely of full-time students unless you meet a statutory exception. The program’s formal name is the Low-Income Housing Tax Credit (LIHTC), and it works by giving tax credits to developers who keep rents below market in exchange for accepting income-limited tenants. Whether you qualify depends on four things: your gross household income, the AMI for your county, how many people are in your household, and student status.

Income Limits at the Property You’re Applying To

Every LIHTC property runs under one of three federal income tests, and the developer’s choice is locked in for the life of the project.¹ Before you apply anywhere, ask the property manager which test the building uses, because it sets your ceiling.

The 20-50 test sets aside at least 20% of units for households at or below 50% of AMI.
The 40-60 test sets aside at least 40% of units for households at or below 60% of AMI. This is the most common election.
The average income test, added in 2018, sets aside at least 40% of units for income-qualified households and lets individual unit caps range from 20% to 80% of AMI in 10% increments, as long as the average of the designated units stays at or below 60% of AMI.¹

The average income test is why some LIHTC buildings now accept households up to 80% of AMI. That does not mean every unit in that building allows 80%. Each unit carries its own designated cap. Ask which cap applies to the specific unit you want.

AMI numbers are published annually by HUD and vary by location and household size.² A household earning $45,000 might qualify comfortably in one metro and be over the limit in the next county. Compare your gross income to the published limit for your county and your household size, not to any national figure.

Who Counts as Part of Your Household

Your household includes every person who will live in the unit, related or not. The count matters because larger households get higher income ceilings. Unborn children of a pregnant applicant are typically counted, which can move a household into a larger size category and lift the applicable income limit.

Children in joint custody who live with you at least half the time are generally included. So are temporarily absent members: a spouse deployed for military service, a child at college who intends to return. The property manager will ask about every planned occupant, including anyone not yet present at move-in.

The Full-Time Student Rule

A unit occupied entirely by full-time students does not count as a low-income unit under Section 42.¹ If every member of your household is a full-time student, you are ineligible unless you fit one of the statutory exceptions. If even one household member is not a full-time student, the rule does not apply. An unborn child counts as a non-student member, so a pregnant full-time student can qualify.

For all-student households, the federal exceptions are:

At least one member receives assistance under Title IV of the Social Security Act (such as TANF), or was previously in foster care under a state agency.¹
At least one member is enrolled in a federally, state, or locally funded job training program.
All adults are single parents living with their minor children, the adults are not claimed as dependents by anyone else, and the children are claimed only by a parent.
All adults are married and eligible to file a joint federal tax return.¹

Property managers verify student status for every household member and must document the applicable exception. Expect detailed questions on this during application.

How Your Income Is Counted

LIHTC properties follow HUD’s income-counting rules. Income from every adult household member is combined, and most sources count.

Counted:

Wages, salaries, overtime, tips, bonuses, and commissions, counted at gross before payroll deductions.³
Social Security, pensions, disability, unemployment, and similar periodic payments.
Alimony, child support, and regular contributions or gifts from people outside the household.
Interest and dividends from bank accounts and investments.

Not counted:

Earnings of household members under 18.³
Foster care payments for foster children or foster adults.
Lump-sum windfalls such as inheritances and insurance payouts.
Student financial aid paid to the student or the school.

Assets Above the HUD Threshold

If your household holds substantial savings or investments, the property may not use only your actual interest and dividends. When total net family assets exceed $52,787 for 2026, HUD rules impute income at a standard passbook savings rate, even if your actual return is lower.⁴ Not every LIHTC property applies the HUD rule directly, but most state agencies require something similar. Below the threshold, only the actual income the assets produce is counted.

What Rent Will Cost If You Qualify

Rent in a Section 42 unit is not set based on what you personally earn. The maximum gross rent is capped at 30% of the imputed income limitation for that unit, adjusted for bedroom count.¹ A unit designated at 60% of AMI has its rent capped at 30% of the 60% figure. If you earn less than the designation, you may still pay the maximum for that unit, because the cap tracks the designation, not your income.

Gross rent includes a utility allowance. The landlord’s charged rent plus estimated tenant-paid utilities together cannot exceed the cap.¹ Tenants sometimes overpay because the utility deduction is missing or wrong on the lease. Check yours.

Documents to Bring to the Application

You apply directly to the property, not to HUD or the state agency. The property’s application package typically includes a household composition form, an income and asset questionnaire, and a student status questionnaire.⁵

Plan to provide:

Recent pay stubs (usually 60 to 90 days), your most recent tax return, and award letters for Social Security, unemployment, or pension income.
Bank statements, brokerage statements, and records for real estate, vehicles, or other significant assets.
Birth certificates for dependents, a marriage certificate if applicable, and ID for every adult.
Enrollment records and proof of the applicable exception if anyone is a full-time student.

Property management verifies the information through third parties: employers, benefit agencies, credit and background checks. Once approved, every adult signs a Tenant Income Certification under penalties of perjury.⁶ Many properties keep waitlists, and some run preference systems for veterans, people with disabilities, or displaced residents. Ask about both when you apply. A preference can move you ahead of earlier applicants.

What Happens If Your Income Rises After Move-In

Initial qualification is based on your income at move-in. After that, the statute is forgiving. Even if your income later rises above the applicable limit, your unit continues to count as low-income as long as you were eligible at move-in and the unit remains rent-restricted.¹

For properties on the 20-50 or 40-60 test, the threshold to watch is 140% of the applicable income limit. Below that, nothing changes. If your income crosses 140%, the owner must apply the Next Available Unit Rule: the next comparable vacant unit in the building has to go to a qualifying low-income household before your unit can lose its low-income status.⁷ You are not evicted for earning more.

Owners must collect an annual income certification from each low-income tenant.⁸ Expect to hand over updated pay stubs, benefit statements, and asset records once a year. Buildings where 100% of units are designated low-income may receive a waiver from annual recertification.¹

Finding a Property

HUD maintains a searchable national database of LIHTC properties at huduser.gov/lihtc, where you can filter by state, county, or zip code.⁹ Your state housing finance agency also publishes property lists and can point you to buildings currently accepting applications. Searching for “[your state] housing finance agency LIHTC” is usually the fastest way to a current list with contact information and vacancy status.

1
Office of the Law Revision Counsel. 26 USC 42 – Low-Income Housing Credit
2
HUD User. Methodology for Calculating FY 2025 Medians
3
U.S. Department of Housing and Urban Development. Exhibit 5-1 Income Inclusions and Exclusions
4
HUD User. 2026 HUD Inflation-Adjusted Values
5
U.S. Department of Housing and Urban Development. HUD LIHTC Tenant Data Collection Form HUD-52697
6
National Council of State Housing Agencies. Instructions for Completing Tenant Income Certification
7
eCFR. 26 CFR 1.42-15 – Available Unit Rule
8
eCFR. 26 CFR 1.42-5 – Monitoring Compliance With Low-Income Housing Credit Requirements
9
HUD User. LIHTC Database Access