Tax Credits

Tax credits reduce a taxpayer's liability dollar for dollar, unlike a deduction, which only reduces taxable income. In LIHTC deals, investors receive tax credits in exchange for financing affordable housing, which is why the credits can be sold to raise equity for a project.

Example

A $10,000 deduction saves a taxpayer in the 24% bracket $2,400. A $10,000 credit saves the full $10,000. That gap is why credits can be sold to investors to raise equity and deductions can't.