Hey aimscore:
Great question! This is another example of a question in which you're going to be best served by looking at major error categories first:
1) Pronouns: Choices A and E both use the pronoun "(of) them". But what does "them" refer back to? The only plural noun in the sentence is "incomes", and since "of them" is used to describe "incomes", "them" cannot refer to incomes. A and E are incorrect because of a Pronoun error.
Similarly, B makes the same mistake, just with "they". "They" doesn't have a plural antecedent (or any antecedent, really), so B is incorrect and you're down to C and D.
2) I'd look at the logic of choice D as being off...it's an inaccurate statement to say that the community possesses ("has") 45% of the household incomes. Choice C is much cleaner - the incomes are below the poverty level, and that's logically correct. Choice D is both illogical in its possessive use of "(community) has 45% of the incomes", and it's a wordier, more awkward statement as well.
3) Where vs. Which - I could be wrong here, but while "where" can only modify a location (and therefore works for "community"), "which" isn't necessarily incorrect in modifying a place. For example, "My parents just moved to a retirement community, which requires that each member pay dues..." would be a perfectly fine application of "which". So in this case, I'd view the more idiomatic "which vs. where" decision as a smokescreen to throw you off the scent of the more-concrete Pronoun errors and then the decision between the logic/fluency of C vs. D.
Word to the wise - look for the most common decision points (verbs, pronouns, etc.) before getting too wrapped up in idiomatic decisions. Where and Which as modifiers are decent decision points, but in this case the idiomatic decision between them really doesn't get you too far.
Brian Galvin
GMAT Instructor
Chief Academic Officer
Veritas Prep
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and hence eliminated C 
