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Twinning 9% and 4% Low-Income Housing Tax Credits in the Same Development

Twinning 9% and 4% Low-Income Housing Tax Credits in the Same Development

As you likely already know, a Low-Income Housing Tax Credits (LIHTC) development can be very competitive, and it can oftentimes be difficult to get a deal to pencil out.

A creative solution that could be employed to help a prospective deal get to the finish line is twinning 9% and 4% tax credits.

What is a Hybrid Deal?

A hybrid LIHTC transaction represents a savvy approach to project financing. Instead of committing a single tax credit rate, this strategy employs a combination of both 9% and 4% LIHTC in what is known as "twinning".

Such a project could initially be structured as either a single 9% tax credit project or a 4% one. However, by adopting the twinning strategy, it evolves into two related, yet independently financed, projects. This method leverages the benefits of both 9% and 4% tax credits across different portions of the development, offering a nuanced solution to funding challenges.

Difference Between Hybrid Deals and Phased Projects

It is important to note that a hybrid deal is distinct from a phased project. 

In a phased scenario, a developer might secure a 9% allocation for the initial phase of a project, following that up with either another 9% or perhaps 4% for subsequent phases.

The hybrid approach combines LIHTC 4% and 9% allocations within the same development timeline, not in sequential phases.

What Does the Tax Code Say?

Let’s take a quick look at the Internal Revenue Code to see what kind of barrier we are up against when trying to make this structure work. According to Section 42, a new building will be treated as federally subsidized if, in this example, tax-exempt bond proceeds are used “directly or indirectly” with respect to the building or its operation.

Basically, per the Internal Revenue Code, the building would only qualify for the 4% tax credit, not the 9% tax credit. So if you are receiving tax-exempt bond proceeds, and using those proceeds to build the building, the Internal Revenue Code says that building is to be treated as federally subsidized, which then means the building is not eligible for 9% credits.

If that is the case, how do we combine the 9% and the 4% together? What is the workaround to get this structure to work? We will need to separate the deal into two distinct projects.

Why Consider Twinning 9% and 4% LIHTC?

This complex yet innovative approach, twinning 9% and 4% LIHTC, is not merely a financial maneuver but a strategic tool that can make the difference in the viability of a LIHTC development.

This is a complex topic. Our eGuide, Twinning 9% and 4% Low-Income Housing Tax Credits, covers how to structure the deal, potential benefits, and challenges.



There are a lot of calculations, analysis, and strategic decisions required when using the twinning tax credit strategy. It’s not something you want to take on without a team of experts to guide you through the process.

SVA has in-depth knowledge and experience working with all the tax credits available. Take the time to reach out to SVA and let us help you navigate the options.

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Biz Tip Topic Expert: Adam Kleinmaus, CPA

Adam Kleinmaus, CPA

Adam is a Principal with SVA Certified Public Accountants with focused expertise in the real estate and nonprofit industries. In his role, he supervises and performs audits for owners of affordable multifamily housing projects receiving Section 42 Low-Income Housing Tax Credits.

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