Are you looking for a tax-favored investment that serves a valuable public need? You may be able to achieve both these goals in one shot.

Strategy: Investigate real estate that generates low-income housing credits. The credits are spread out over the time it takes to complete the project.

Typically, the properties are acquired by real estate syndicators and packaged for sale to investors. So you don’t have to scour the landscape to find affordable deals. The syndicator does the grunt work for you.

Here’s the whole story: The low-income housing credit program has been around since 1987. Each state receives credits that it can allocate towards funding housing that meets the program guidelines. These tax credits are then used to leverage private investments into development of the real estate properties. The rent for each unit is established so that tenant monthly housing costs, including a utility allowance, do not exceed the applicable rent limit. These limits are based on a percentage of area median income as adjusted by unit size. Rents can’t exceed local market limits. Investors earn low-income housing credits when units are rented out to qualified tenants. Credits are available for new construction, rehabilitation or acquisition and rehabilitation of affordable housing if 20% or more of the residential units in the project are rent-restricted and occupied by individuals whose income is 50% or less of area median gross income, or 40% or more of the residential units in the project are rent-restricted and occupied by individuals whose income is 60% or less of area median gross income. When the program began in 1987, properties receiving tax credits were required to remain eligible for 15 years. This has since been increased to 30 years. Tip: Credits may be affected by passive activity loss limits.