Average Income Final Regulation - Unit Designation Requirements

person A.J. Johnson today 11/11/2022

This is the third in my series of articles on the new Average Income Regulation. In this article, I will review the requirements relating to the designation of units.

Designation of Imputed Income Limitations and Identification of Units

The final regulations require the initial designation of a unit to be made no later than when a unit is first occupied as a low-income unit. The regulations also revise the timing of the designation so that it is no longer required by the end of the first year of the credit period, and instead is based on when a unit is first occupied as a low-income unit. (Owners and managers should note that this may be before or after the beginning of the first year of the credit period).  The designation must also be communicated annually to the HFA, and the HFA may establish the time and manner in which information is provided to it. This change will allow a taxpayer to make designations after having a chance to evaluate the market for a particular unit.

Importantly, the temporary regulations also provide Agencies with the discretion, on a case-by-case basis, to waive in writing any failure to comply with the temporary regulations’ recordkeeping and reporting requirements.  The waiver may be done up to 180 days after discovery of the failure, whether by taxpayer or Agency. At the discretion of the applicable Agency, this waiver may treat the relevant requirements as having been satisfied.

Timing of Designations of Income Limitations

The final regulations permit the changing of a unit’s imputed income limitation in certain circumstances. For an unoccupied unit that is subject to a change in imputed income limitation, the final regulations provide that the taxpayer must designate the unit’s changed imputed income limitation prior to occupancy of that unit. For an occupied unit that is subject to a change in imputed income limitation, the taxpayer must designate the unit’s changed imputed income limitation prior to the end of the taxable year in which the change occurs.

Changing a Unit’s Imputed Income Designation

The proposed regulations did not allow income limitations to be changed after they had been designated.

Under the final regulations, a taxpayer may change the imputed income limitation designation of a previously designated low-income unit in any of the following circumstances:

(1) In accordance with future written instructions from the IRS.

(2) In accordance with an HFAs publicly available written procedures, if those procedures are available to all of the Agency’s projects that have elected the average income test.

(3) To comply with the requirements of the Americans With Disabilities Act of 1990; the Fair Housing Amendments Act of 1988; the Violence Against Women Act; the Rehabilitation Act of 1973; or any other State, Federal, or local law or program that protects tenants and that is identified by the IRS or an Agency in a manner described in (1) or (2) above.  The tenant protections that apply to an average-income project and that redesignation may enhance do not necessarily have any specific connection to section 42. 

For example, the protections may be ones that apply to all multifamily rental housing, or they may apply to the project at issue because some congressionally authorized spending supported the project with Federal financial assistance. Even if tenant protection does not legally apply to a particular average-income project but does apply to analogous multifamily rental housing, the owner of the project may redesignate income limitations to implement the protection for the project’s residents.

(4) To enable a current income-qualified tenant to move to a different unit within a project keeping the same income limitation (and thus the same maximum gross rent), with the newly occupied unit and the vacated unit exchanging income limitations.

(5) To restore the required average income limitation for purposes of identifying a qualified group of units either for purposes of satisfying the average income set aside or for purposes of identifying the units to be used in computing applicable fraction(s). This rule is limited to newly designated, or redesignated, units that are vacant or are occupied by a tenant that would satisfy the new, lower imputed income limitation.

Any new designation of units must be reported to the HFA in a manner required by the HFA. For example, an HFA may allow the project owner to describe a current year’s information by reporting differences from the prior year’s information or by reporting that there is no difference from the prior year.

As noted above, on a case-by-case basis, the Agency has the discretion to waive in writing any failure to comply with the reporting requirements up to 180 days after discovery of the failure, whether by the owner or Agency. If an Agency exercises this discretion, the reporting requirements will be considered to have been met.

Latest Articles

House and Senate Add Homeless Students and Veterans as LIHTC Student Exception

On November 16, 2022, S. 5108 was introduced in the U.S. Senate, and H.R. 9313 was introduced in the U.S. House of Representatives. The title of the bill is "Housing for Homeless Students Act of 2022. If the bill becomes law, it will amend Section 42 of the Internal Revenue Code to qualify homeless youth and veterans who are full-time students for purposes of the low-income housing tax credit. The homeless student rule would have a look-back period of seven years prior to occupancy in a LIHTC project and the veteran exception would have a five-year look-back. In other words, if a full-time student was homeless at any point during the seven years preceding occupancy at a tax credit property, that person will not be considered a student for tax credit purposes. Likewise, if a veteran has been homeless at any time during the five years preceding occupancy at a tax credit property, that person will not be considered a student for tax credit purposes. The Senate bill has been referred to the Senate Finance Committee and the House Bill to the House Ways and Means Committee. There is no specific timeframe for the bill to become law and owners and managers of LIHTC properties should not change the current procedures being followed relative to student status.

2023 Income Limits Will Be Delayed

The U.S. Department of Housing & Urban Development (HUD) normally publishes annual income limits in early April of each year. However, complications with calculating the limits due to COVID-19 will cause a delay in the release of the limits in 2023. According to HUD, the limits will be released on or about May 15, 2023. HUD normally uses American Community Survey (ACS) Data from three years prior to the income limit release to determine family median incomes and income limits. However, the Census Bureau did not release the 2020 one-year ACS data due to data collection difficulties because of the COVID-19 pandemic. For this reason, HUD will use 2021 ACS data to determine the 2023 median income and income limits for low-income housing tax credit (LIHTC) properties. Why is this important? Owners of LIHTC properties will have to wait a little longer than usual to determine the income and rent levels available to them for 2023. While increases in income limits nationally are expected to be less than in prior years, most areas should still see some increase in limits, which will allow for a modest increase in rents in 2023.

Virginia Housing Looking for Compliance Staff

Virginia Housing (formerly Virginia Housing & Development Authority) has three positions open in Compliance & Asset Management. If interested, you may access the position descriptions at https://us63.dayforcehcm.com/CandidatePortal/en-US/VHDA. Virginia Housing (VH) is one of the premier Housing Finance Agencies in the nation and I have had the privilege of working with them for more than 40 years. The Agency provides an excellent work environment and has a comprehensive benefits program, including medical, dental, vision, and prescription drug coverage. VH also has both long- and short-term disability plans and various options for retirement plans. If you (or someone you know) are looking for an excellent opportunity on the public side of the affordable housing field, I encourage you to check out the open positions at VH and consider applying.

Rural Development Suspends Interim Recertification Requirements for COLA Recipients

On November 10, 2022, the Rural Development Service released an Unnumbered Letter granting a temporary exception to tenant recertification requirements. On October 13, 2022, the Social Security Administration announced there will be an 8.7% increase in Social Security and Supplemental Security Income (SSI) benefits in 2023. This will increase the average SS payment by more than $140 per month starting in January. The RD Section 515 program requires that tenant households be recertified at least annually or when household income changes by $100 or more per month. Since the increase would require recertifications for most Social Security recipients, the Agency is temporarily waiving the recertification requirement for tenants whose household income, regardless of income type, has increased by more than $100 but less than $200. Accordingly, during the Exception period, tenants will not be required to recertify unless their household income changes by $200 or more per month. This temporary waiver will be in place for all of 2023 and will expire on December 31, 2023. During the period of the waiver, tenant households must be recertified at least annually or whenever a change in household income of $200 or more per month occurs. The requirement that borrowers must recertify for changes of $50 per month if the tenant requests that such change be made, is still in effect. Keep in mind, the exception does not waive the requirement for the annual renewal certifications. Owners will receive a copy of this notice from RD. Once received, the notice must be posted in a conspicuous location at the property and a copy of the notice must be provided to all tenants.

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