On October 12, 2022, the Department of the Treasury released the Low Income Housing Tax Credit (LIHTC) final regulations related to the income-averaging test that are now in effect. The final regulations provide guidance to using the Average Income Set-Asides, which are used to qualify as a low-income housing project and receive low-income housing credits. The final rule, which also focuses on revising limitations related to the imputed income designation of units and revising criteria/requirements of the Average Income Test, affect owners of low-income housing projects, tenants in those projects, and State/local housing credit agencies that monitor compliance.
Some revisions to LIHTC income-averaging in the final rule include:
- Unit designations: Unit designations can change based on the activity of a tenant in instances of conflicts with federal laws, guidance issued by the governing State Housing Finance Agency, and through tenant transfers.
- Meeting the Minimum Set-Aside for Income-Averaging: At least 40% of a project’s residential units must be eligible low-income units and designated collectively averaging 60% or less of area median gross income (AMGI). This fixes the “cliff effect” of the proposed rule, meaning that one-unit out of compliance does not mean that the entire project would fail the minimum set-aside.
- New definition: “Low-income unit,” specific to the Average Income Test, will now take into account if a unit is part of a group of units with a compliant average limitation.
- Reporting requirements: Temporarily requires recording and annual communication to the applicable agency of (i) units in the qualified group of units used for satisfying the average income set-aside (ii) units in the qualified group for purposes of the applicable fractions.
The final rule can be found here.
For a more in-depth look into the rule, please see our next edition of The Monitor on October 31.