While Section 8 and Section 42 housing programs both focus on providing affordable housing for low-income tenants, the former is a government subsidy program and the latter is a tax incentive for investors. As a tenant, you can apply for either with a little help from local housing authorities.
As per 2015 figures, the federal government spent $29.9 billion on funding the Section 8 rental assistance program, while the government funding bill that was passed in February of 2019 sustained funding for housing vouchers and other rental assistance. If that sounds like a lot, consider that the Mortgage Interest Deduction alone – a tax benefit aimed at the wealthy, with 85 percent of expenditures going to high-income households – cost the federal government over $70 billion each year. As a tax-paying citizen, it's your right to reap the potential benefits of housing programs like Section 8 and Section 42 – so if you qualify for either, don't hesitate to apply.
TL;DR (Too Long; Didn't Read)
Because Section 8 and Section 42 are administered by local authorities, the application process varies a bit depending on where you live.
About the Programs
More formally known as the Housing Choice Voucher Program, "Section 8" is a rental subsidy funded by the U.S. Department of Housing and Urban Development. This program enables private landlords to rent apartments and homes at affordable, fair market rates to qualifying low-income tenants. Typically, renters benefiting from this voucher program pay no more than 30 percent of their income toward rent, with the federal subsidy paying the rest of the balance.
On the other hand, the Section 42 housing program is a tax credit offered by the Internal Revenue Tax Code, aimed at investors to encourage the construction of affordable housing for people with low or fixed incomes. When investors build affordable housing, Section 42 offers them reduced tax liability. Similar to Section 8, Section 42 housing requirements on the tenant side are determined by local branches of the Department of Housing and Urban Development.
In contrast to Section 8, Section 42 (named for its place in the IRS tax code) is not a subsidy program. Rather than the government making up the difference in rent to the landlord, Section 42 housing rent is capped at a fixed amount.
Apply for Section 8
Local housing authorities administer Section 8 programs throughout the country, so interested tenants must work through their local housing agency to apply (you can find a list of local Public Housing Agencies at HUD.gov). Housing authorities also determine specific eligibility and application requirements based on the needs of their locality, so the application process varies a bit depending on location.
However, the nuts and bolts of the process are fairly standard across the country. You'll fill out and submit an online or paper application detailing factors such as:
- Basic identifying info
- Basic contact info
- Family size
- Income details
- Citizenship status
- Rental and eviction history
- Criminal history (public housing evictions and drug-related criminal activity may prohibit you from Section 8 assistance for a few years)
The local public housing authority will process the application to determine your eligibility, bu unfortunately, it's not uncommon for Section 8 applicants to land on a waiting list for a year or two.
After the application is approved, the tenant will receive vouchers usable at qualified Section 8 rental housing. Renters can generally negotiate a lease directly with the property owner, as per usual; likewise, Section 8 tenants are subject to the same basic lease agreements and screening criteria as non-Section 8 tenants in the same building.
Apply for Section 42
As local branches of the Department of Housing and Urban Development administer Section 42 housing programs to tenants, the HUD for each county or metropolitan area sets the eligible income levels for Section 42 tenants and sets rents based on median county income. Your local HUD or housing and community development authority will maintain a current list of Section 42 properties. However, to actually apply for a Section 42 apartment, you'll need to visit the leasing agent at the Section 42-eligible apartment in question.
The Section 42 application typically works like a standard rental application, but takes a wide and thorough variety of income factors into account, including:
- Standard wages
- Asset income (checking accounts, savings accounts, retirement accounts and other bank accounts)
- Cash on hand
- Child Support
- Social Security
- Trust funds
The Section 42 application, which must include income-verifying documents, calculates total household income. Once submitted, your income is compared to the income limits in effect at the property.
Student status may also affect Section 42 eligibility, prohibiting some households composed entirely of full-time students from renting Section 42 units. Section 42 eligibility doesn't end with the initial application – each year, you must re-certify your income and household size to verify your ongoing eligibility.
Investors who fund affordable housing construction must claim the credit on their annual income tax returns. To determine your eligibility for the credit, you'll need to provide information about your income, family size and financial assets. To claim the credit, you'll need to fill out some or all of these IRS forms and submit them with your tax returns:
- Form 8609, Low-Income Housing Credit Allocation and Certification
- Form 8609-A, Annual Statement for Low-Income Housing Credit
- Form 8610, Annual Low-Income Housing Credit Agencies Report
- Form 8821, Tax Information Authorization
- Form 8823, Low-Income Housing Credit Agencies Report of Noncompliance or Building Disposition
Additionally, the IRS may require a balance sheet, Schedule K and K-1 packets and your prior years' tax returns.
Low-income housing credit is calculated as the applicable percentage of each qualified low-income building, typically at 70 percent the present value for new buildings and 30 percent the present value of other buildings. Local housing and community development authorities will conduct audits, physical property inspections and annual reviews to ensure that Section 42 properties continually comply with the program's requirements.
- Apartment List: Imbalance in Housing Aid: Mortgage Interest Deduction vs. Section 8
- Center on Budget and Policy Priorities: 2019 Bill Largely Sustains 2018 HUD Funding Gains
- Home Forward: What Is Section 8?
- AffordableHousingOnline: Common Questions About Section 8 Housing
- State of Indiana: Indiana Housing and Community Development Authority: Section 42: FAQ for Residents and Applicants
- Eligibility.com: Section 8 Housing: Eligibility for the Section 8/Housing Choice Program
- HUD.gov: PHA Contact Information
- Apartment Guide: What Is Section 42 Housing?
- IRS: IRC 42, Low-Income Housing Credit
- Cornell Law School: 26 U.S. Code 42 Low-Income Housing Credit