4% vs 9% LIHTC: how the two credits differ in 2026
The 9% credit pays roughly 70% of a building’s qualified basis in present value and comes out of each state’s annual credit ceiling, so developers compete for it. The 4% credit pays roughly 30% and comes automatically with enough tax-exempt private activity bond financing, so it’s limited by the state’s bond cap instead.
| 9% credit | 4% credit | |
|---|---|---|
| Present value target | 70% of qualified basis | 30% of qualified basis |
| Floor | 9% for new, non-federally-subsidized buildings placed in service after July 30, 2008 (IRC 42(b)(2)) | 4% for 30%-credit buildings placed in service after 2020 with allocations or bonds after 2020 (42(b)(3)) |
| November 2026 computed rate | 8.24%, so the 9% floor applies | 3.53%, so the 4% floor applies (Rev. Rul. 2026-21) |
| Where the credit comes from | The state housing credit ceiling | Tax-exempt bonds financing enough of the building and land (42(h)(4)) |
| 2026 supply | Greater of $3.416 per resident or $3,953,600 per state (Rev. Proc. 2025-32) | Bond cap: greater of $135 per resident or $397,625,000 per state |
| Basis boost | Up to 130% in a QCT or DDA, or where the state designates it | Up to 130% in a QCT or DDA only |
| How you get it | Scored competitively under the state’s qualified allocation plan | Bond allocation and the agency’s review, usually rolling or by round |
What the difference means on a real deal
Same building, $15,000,000 of eligible basis, all units low-income. At 9%, the annual credit is $1,350,000 and the ten-year total $13,500,000. At 4%, it’s $600,000 a year and $6,000,000 over ten years. In a QCT or DDA the boost raises both by 30%: $1,755,000 or $780,000 a year. Run your own numbers in the credit estimator or check whether the site is in a QCT or DDA.
The 4% deal raises less than half the equity, so the rest of the stack has to be bigger: more debt, soft money, or deferred fee. In exchange it doesn’t need to win a 9% round, though in many states the bond cap is competitive too.
The 2026 changes
Public Law 119-21 (July 4, 2025) made two changes that matter here. It raised state housing credit ceilings by 12% permanently, starting with calendar 2026, which is already in Rev. Proc. 2025-32’s $3.416 figure. And it lowered the bond financing test for 4% deals from 50% to 25% of aggregate basis for buildings placed in service in taxable years beginning after 2025, when bonds from issues dated after 2025 finance at least 5% of the basis. How the 25% test works.