August 25, 2026
Properties financed through the Low-Income Housing Tax Credit program present valuation questions that do not arise with conventional multifamily. The program, authorized under Section 42 of the Internal Revenue Code and administered through state housing credit agencies, imposes restrictions that directly affect income, marketability, and the analysis required to value the property.
This article outlines those restrictions, the principal methodological questions, and the areas where practice and law remain unsettled.
What the restrictions are
LIHTC properties are subject to a Land Use Restriction Agreement, commonly abbreviated LURA, recorded against the property and enforceable against subsequent owners. The agreement runs with the land.
A LURA limits the rent that may be charged and restricts occupancy to households below specified income levels. The affordability commitment is a minimum of 30 years: an initial compliance period of at least 15 years followed by an extended use period of at least 15 additional years.
These restrictions affect valuation in three ways: they cap gross potential income, they narrow the pool of eligible residents, and they limit liquidity over a long period.
Operating characteristics
LIHTC properties generally carry higher operating expenses than comparable conventional properties. Contributing factors include compliance fees paid to the state agency, additional staff time to verify and document resident eligibility, and reporting obligations that do not apply to market-rate properties.
Expense analysis based on conventional multifamily comparables will therefore understate expenses unless adjusted.
The three contested questions
Published commentary identifies three issues on which appraisers do not fully agree: how to treat the land use restrictions, how to treat the tax credits, and how to select relevant comparables. Each remains genuinely open.
Restricted rent or market rent. An income approach requires selecting the rent used to derive gross potential income. Commentary indicates a substantial consensus has developed in favor of using the property’s restricted rents rather than unrestricted market rents, with a reported 30 jurisdictions mandating the use of restricted rent amounts. Consensus is not universal, and the applicable rule depends on jurisdiction.
Treatment of tax credits. This remains genuinely unresolved, and appellate decisions have reached different conclusions. Published summaries of case law describe courts holding that tax credits are intangible personal property and therefore not subject to real property taxation, and other courts holding that both restricted rents and tax credits must be taken into account. Some states have addressed the question by statute; Arizona, for example, provides a statutory income method for valuing low-income multifamily residential rental property.
Quantifying the effect of restrictions. Where restrictions are accounted for through obsolescence or a capitalization rate adjustment rather than through the rent used, the magnitude of that adjustment is frequently disputed between owners and assessing authorities.
Because these questions are resolved differently by jurisdiction, the applicable framework should be established with counsel before an appraisal is developed. An analysis using restricted rents in a jurisdiction requiring a different treatment, or accounting for credits where they are excluded, may not be usable for its intended purpose.
Methodology in practice
The income approach is the method most commonly applied to LIHTC properties, since sales are infrequent and the restrictions limit the relevance of conventional multifamily comparables.
Published commentary indicates that direct capitalization is more common than discounted cash flow analysis in practice, on the basis that it corresponds to the methods used by affordable housing investors and by assessing authorities. Other commentary has proposed discounted cash flow as better suited to reflecting the finite restriction period and the credit stream.
Where the analysis reflects the restrictions in the income stream, the capitalization rate, or a liquidity adjustment, the appraiser should apply the effect once. Reflecting the same restriction in multiple places overstates its impact.
Comparable selection
Sales of LIHTC properties are limited, and each transaction reflects a specific position within the compliance period, a specific credit structure, and specific restriction terms. A sale in year three of the initial compliance period is not directly comparable to a sale in year twenty of the extended use period.
Where conventional multifamily sales are used, the adjustment for restrictions carries substantial weight and requires support.
Assignments where these questions arise
- Ad valorem property tax, where the valuation dispute is often the largest recurring cost issue for the owner
- Acquisition and disposition, including transfers within the extended use period
- Financing and refinancing
- Year 15 transactions, at the conclusion of the initial compliance period, including partner exits and qualified contract matters
- Partnership and investor disputes
- Estate and gift valuation of interests in LIHTC partnerships
Teel Valuation Group appraises affordable and conventional multifamily property, including LIHTC and other restricted-rent assets, for lending, acquisition, property tax, litigation, and estate purposes.
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