Section 42 housing is privately owned rental housing that stays affordable because the owner receives federal tax credits in exchange for capping rents and renting to lower-income households. The program is named after Section 42 of the Internal Revenue Code and has financed roughly 3.7 million units since 1986, making it the largest source of affordable rental housing in the country.1HUD User. Low-Income Housing Tax Credit (LIHTC) Property Level Data To qualify as a tenant, your household income generally has to fall at or below 60 percent of the area median income, though some properties now accept households earning up to 80 percent. The rules on rent, income changes, and who counts as an eligible household are less intuitive than the headline suggests, and it helps to understand them before you apply.
How Rent Actually Works
This is where most people get the wrong idea. Section 42 rent is not based on what you earn. It is a flat ceiling tied to the area median income for your location and the size of the unit. Two tenants living in identical apartments pay the same maximum rent whether one earns $25,000 or $40,000. That is the biggest difference between Section 42 and a Section 8 voucher, where the tenant pays roughly 30 percent of their own adjusted income.
The formula: gross rent, including a utility allowance, cannot exceed 30 percent of the imputed income limit assigned to the unit.2Office of the Law Revision Counsel. 26 USC 42 – Low-Income Housing Credit Household size is imputed at 1.5 people per bedroom, so a two-bedroom unit uses the income limit for a three-person household and a studio uses the one-person limit. If you pay your own electric, gas, or water, the property subtracts a utility allowance from the rent it charges you, so your out-of-pocket rent drops to keep your total housing cost within the cap.
The result is rent that sits well below market in most areas, but not the deeply subsidized, income-adjusted rent you would get with project-based Section 8.
Who Qualifies
Income Limits
Your household income must be at or below the limit assigned to the specific unit you apply for. Most Section 42 units are set at 50 or 60 percent of area median income. Since a 2018 change, some properties use an “average income” approach, which allows individual units within a project to be designated at anywhere from 20 to 80 percent of AMI, as long as the average across the restricted units does not exceed 60 percent.2Office of the Law Revision Counsel. 26 USC 42 – Low-Income Housing Credit If you have been told your income was too high in the past, it is worth asking whether a property uses income averaging.
HUD publishes the actual dollar figures every year, adjusted for local wages and family size, and they vary sharply by geography. Sixty percent of AMI in San Francisco is a completely different number than 60 percent of AMI in rural Mississippi. You can look up the limits for your county on HUD’s income limits page.3HUD User. Income Limits LIHTC properties specifically use HUD’s Multifamily Tax Subsidy Project limits, which include some statutory floors and hold-harmless adjustments.
Assets
Eligibility is not just about wages. If your household’s total net assets exceed $5,000, the property must calculate imputed income from those assets using a HUD-published passbook savings rate, which is 0.40 percent for 2026.4HUD User. 2026 HUD Inflation-Adjusted Values and Passbook Rate The higher of your actual asset income or the imputed amount gets added to your annual income for the eligibility calculation. This rarely disqualifies anyone without substantial savings, but you will need to document every bank and investment account when you apply.
The Student Rule
A household made up entirely of full-time students is generally ineligible for Section 42 housing, regardless of income. The rule catches adult students returning to school and couples where both partners are enrolled full-time. Congress designed the program for working low-income families, not student housing.
There are five exceptions. An all-student household still qualifies if:2Office of the Law Revision Counsel. 26 USC 42 – Low-Income Housing Credit
- All adults are single parents with minor children, none of the adults are claimed as dependents by anyone else, and the children are only claimed by their parents.
- All adults are married and eligible to file a joint tax return.
- At least one member receives assistance under Title IV of the Social Security Act (TANF).
- At least one member was previously in state foster care.
- At least one member is enrolled in a job training program funded under the Workforce Investment Act or a similar government program.
An unborn child counts as a non-student household member. And if even one adult in the household is not a full-time student, the restriction does not apply at all. Student status is verified every year during the compliance period, even at properties that otherwise skip annual income recertification.
Standard Screening
Meeting the income limit gets you through the eligibility door, but the property can still deny your application on the same grounds any landlord uses. LIHTC properties run background checks, review rental history, and pull credit reports. Prior evictions or a pattern of unpaid rent can disqualify you. Fair housing laws still apply, and screening criteria have to be applied consistently.
What Happens If Your Income Goes Up
A common worry is losing the apartment after a raise. The rules are more forgiving than tenants expect. If your household was within the income limit when you moved in, later income growth does not cost you your qualifying-tenant status, and your rent stays within the same restricted cap.5eCFR. 26 CFR 1.42-15 – Available Unit Rule
The trigger point is 140 percent of the applicable income limit. Once your income crosses that line, your unit becomes “over-income” and the available unit rule kicks in. The owner then has to rent the next comparable vacant unit in the building to a qualifying low-income household, which restores compliance. You are not evicted, and your rent does not change. The property simply backfills the next opening with someone who qualifies.
Annual Recertification
Most properties require you to recertify your income and household composition each year around your move-in anniversary. Expect to produce updated pay stubs, tax returns, bank statements, benefit letters, and verification for every other income source. Every adult signs a Tenant Income Certification form. Properties where all units are LIHTC-restricted, with no market-rate mix, can skip annual income recertification for existing tenants, though student status still gets verified yearly.
Miss the deadline or fail to hand over documentation, and the property manager may have to treat your unit as out of compliance, which puts the owner’s tax credits at risk. That is why the reminders can get insistent. Answer them promptly.
Tenant Protections
Section 42 tenants have stronger eviction protections than many renters realize. The IRS reads the statute to require “good cause” for any eviction or lease non-renewal at a LIHTC property.6Internal Revenue Service. Internal Revenue Bulletin 2004-35 Good cause generally means nonpayment, a serious lease violation, or criminal activity. A landlord cannot decline to renew your lease because the compliance period is winding down or because they would rather have market-rate tenants.
The statute also gives you a three-year protection window after the property’s extended use agreement ends. During that window, no existing tenant of a low-income unit can be evicted without good cause, and rent cannot be raised above the LIHTC formula.2Office of the Law Revision Counsel. 26 USC 42 – Low-Income Housing Credit The extended use agreement must let income-eligible tenants enforce the property’s obligations in state court, so you have a private right of action if the owner breaks the rules.
LIHTC properties also cannot refuse to lease to someone solely because they hold a Section 8 Housing Choice Voucher.2Office of the Law Revision Counsel. 26 USC 42 – Low-Income Housing Credit You can combine a voucher with a Section 42 unit, and the voucher payment does not count toward gross rent for compliance purposes. That combination sometimes brings your out-of-pocket cost very low.
Finding a Unit and Applying
There is no single national website with real-time LIHTC vacancies, which is one of the program’s ongoing frustrations. A few resources help narrow the search.
HUD’s LIHTC Database is searchable by state, city, county, and construction type, and it identifies where properties exist, though not which have openings.7HUD User. LIHTC Database Access Treat it as a starting map, not a rental listing. Your state’s housing finance agency is usually the more useful resource, since each agency administers the credit allocation, monitors compliance, and often keeps its own directory of properties with management contacts. Local housing authorities can also point you to nearby properties and may know which waitlists are open.
Once you have a list, contact each management company directly. Every property runs its own waitlist. There is no centralized application, and applying to several properties improves your odds.
Applying takes more paperwork than a market-rate rental. Property managers verify income, assets, household composition, and student status before they can certify you. Expect to provide pay stubs, tax returns, bank statements, Social Security or benefit letters, and documentation of any other income. Self-employed applicants generally need a year-to-date profit and loss statement plus the prior year’s tax return. Third-party verification is standard: income verification usually has to come directly from the employer or institution rather than through you. When third-party verification is not possible, consecutive recent pay stubs work as a backup. Checking accounts typically require six consecutive statements; savings accounts need the most recent one.
Waits vary widely. In high-demand metro areas, one to five years is typical. Rural areas and newer developments may have shorter waits or immediate availability. Some properties close their lists when they get too long and reopen them periodically, so checking back is worth the effort.