Who is eligible for Section 42 housing?

Who is eligible for Section 42 housing? This question matters to renters, housing counselors, and property managers. Section 42 housing—commonly called LIHTC housing—provides affordable rental units to low- and moderate-income households. This guide explains who is eligible for Section 42 housing, how eligibility is determined, and steps to apply. It covers income limits, household size, the student status rule, asset checks, documentation, tenant certification, waiting lists, and differences from other affordable housing programs.

What is Section 42 / LIHTC?

The Low-Income Housing Tax Credit (LIHTC), created under Internal Revenue Code Section 42, gives tax credits to developers who build or rehabilitate rental housing that remains affordable. Eligible units must be rent-restricted and occupied by households meeting income limits set relative to the area median income (AMI). Owners and property managers must follow federal, state, and investor compliance rules and verify tenant eligibility at move-in and annually. 

 The two core eligibility tests

To live in a Section 42 unit, a household generally must pass two main tests:

1. Income eligibility — Total household income must be at or below the limits for the unit (e.g., 30%, 50%, or 60% of AMI depending on the property’s set-aside). HUD and state agencies publish annual income limits used by LIHTC properties.
2. Student status rule — Full-time students are often excluded unless they meet specific exceptions (e.g., married, a veteran, have dependents, or are receiving assistance). HUD/Housing authorities’ student rules limit using student income in household calculations. This prevents unrelated students from qualifying solely due to low reported income.

 Income eligibility — how income is calculated

Income for eligibility is the household’s gross annual income from all sources: wages, tips, social security, benefits, pensions, unemployment, and more. Most LIHTC properties use HUD’s definitions and verification procedures:

• Inclusions: wages, self-employment, Social Security, child support, unemployment, pensions.
• Exclusions: certain one-time payments, foster care payments, and sometimes program-specific exclusions.

Area Median Income (AMI) determines the income limits. Properties may be set aside for households at 30%, 50%, or 60% of AMI (or other percentages depending on state rules). A household’s size determines the applicable income limit — larger households have higher income limits. HUD updates AMI limits annually.

Sample income calculation (illustrative)

Suppose the 50% AMI for a 2-person household in County X is $45,000. A household with combined gross income of $44,000 would qualify for a 50% set-aside unit, assuming no other disqualifying issues. Conversely, a household with $48,000 would exceed the 50% limit and be ineligible for that unit size. Always use HUD or state published limits for exact figures. 

Documenting income

When applying, expect to provide:

• Pay stubs (30–60 days),
• Federal tax returns (most recent year),
• Benefit award letters (SSA, VA, etc.),
• Bank statements (to verify irregular income),
• Documentation for child support or other payments.

Property managers must verify income and keep records for compliance audits. Failure to provide documentation can delay or deny eligibility. 

 Student eligibility and the LIHTC student rule

The LIHTC program includes a specific student rule to prevent unrelated full-time students from occupying discounted units when not intended. Key points:

• A person who is a full-time student and is not the head, co-head, or spouse is usually not eligible to be counted in a LIHTC household unless they meet exceptions.
• Exceptions include married students, students receiving Section 8, veterans, or those with children for whom they are financially responsible.
• HUD limits counting student income — a common technical rule is counting only up to a small amount of earned income for some student situations. Always check property policy and state guidance.

Case example: A two-person household where one member is a full-time student and the other is a working spouse may still qualify because the student is not the head or co-head. But two unrelated roommates who are full-time students likely do not qualify unless they meet exceptions.

 Asset limits and verification

Some LIHTC programs consider assets when determining eligibility. While LIHTC primarily focuses on income, owners may verify assets that produce income (e.g., interest, dividends) and include imputed income from assets if required by state compliance manuals.

Assets to disclose commonly include:

• Savings and checking balances,
• Stocks, bonds, CDs,
• Real estate holdings (unless excluded),
• Trusts and inheritance (when accessible).

Owners use asset verification to calculate potential income from assets. Rules vary by state and investor compliance documents. Document small savings and large liquid assets carefully — they can affect eligibility. 

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