Applying New Income Limits for LIHTC Properties
Since the last issue of this newsletter, the most exciting development in the LIHTC world is that HUD published the updated income limits for Multifamily Tax Subsidy Projects (MTSP) on December 18, 2013, along with the publication of income limits for HUD programs. For LIHTC, IRS Revenue Ruling 94-57 tells us that the new income limits must be put into use by the later of the effective date (Dec. 18) or 45 days from the publication date, which falls on Jan. 31, 2014 this year.
Unfortunately for managers, choosing the appropriate limits for your tax credit property is not as simple as it once was. So let’s go over the basics of the selection process here so that you are properly qualifying your applicants in the new year and can ensure your property stays in compliance on this matter.
First of all, is your property located in a rural area? If so, then the Housing and Economic Recovery Act of 2008 (HERA) added a provision to the regulations that allows owners of LIHTC properties in rural designations to use the higher of either their county or parish Median Family Income or the National Non-Metro Median Family Income, which for this fiscal year is $52,500. This means that if your tax credit property is located in a rural area where median income is less than this amount, then you may use the income limits associated with the national median instead. Obviously if your median income is more then you will simply use the limits for your area as published.
Secondly, are there HERA Special limits published for your property’s location? If so, and the property was placed in service before Jan. 1, 2009, then you are required to use the HERA Special limits. HUD published HERA Special limits in areas that were adversely affected by HUD’s Hold Harmless Policy in 2007-08 and the regular limits are less than the HERA Special limits. Also, you should use the higher of the HERA Special and the National Non-Metro limits if the property is in a rural area.
Lastly, keep in mind that although the Hold Harmless Policy was rescinded for HUD projects in 2010, it still holds for LIHTC and Tax Exempt Bond properties so if your property was placed in service after December 31, 2008 and the new limits are lower than the existing 2013 limits, then you should use the higher of the two. To use a popular industry analogy, it’s like climbing a ladder with the Hold Harmless policy. You can only go up and never back down. So, in other words, the highest limit that has been in effect at your property will always be the baseline going forward.
I certainly hope this helps serve as a reminder of how the new income limits should be selected and implemented at your tax credit sites. Questions? You may contact me about this or any other LIHTC matter if you are are currently NCHM certified through eHotline on www.nchm.org. Happy New Year!