New LIHTC Income Limit Update
An interesting question was raised at the National Council of State Housing Agency’s Housing Finance Agency Institute in January: After new income limits have been published by HUD, should owners/agents of LIHTC properties use the existing income limits during the 45-day leeway period or immediately begin using the new income limits?
The question sparked a lively debate and highlighted an important and timely issue, considering that, in 2012, some areas of the country experienced their first decrease in income limits. NCHM sends a big shout-out to Grace Robertson of the IRS for her prompt clarification on this issue in her March, 2012 LIHC email newsletter, which will be summarized here for our faithful followers. (Subscribe to the free newsletter by contacting Grace at Grace.F.Robertson@irs.gov.)
I think HUD surprised us all by publishing its annual income limit tables for 2012 on December 1, 2011 — the earliest date I can remember in my experience working in affordable housing. As noted above, some areas saw income limits fall from those published earlier in the year and in current usage among LIHTC owners. Naturally, it’s to the owner’s advantage to use higher income limits because it allows for a wider pool of qualifying applicants; for LIHTC properties it means that tenants could be charged higher rent.
When the lower limits came out, owners/agents found themselves in a conundrum wondering which to use. Most management companies that I encounter will always go with the most conservative approach in order to avoid noncompliance issues. The good news is that the IRS clarification on this point allows for flexibility.
Grace states in her newsletter that “the straightforward answer is that taxpayers can rely on the outdated income limits for all purposes, and they may choose which income limits to use (outdated or new) based on which provides the greater tax benefit.” So, in practical terms, if your property saw lower income limits published on December 1, 2011 than were currently being used, you would be allowed to “rely” on the existing (or outdated) limits until January 14, 2012. This would also be applicable in establishing gross rent floors for an LIHTC property.
It thrills me to no end to be able to spread this good news to you all! (I know – I’m a compliance geek and happily admit it.) Even though this comes somewhat after the fact for this year, please keep this clarification in mind going forward. You may not be one who had the experience this year, but you never know when it may be your property that finds itself in this predicament. Thanks to the IRS, we now know how to proceed when it does.