NMHC on December 2 joined a number of organizations to request that the Treasury Department and Internal Revenue Service (IRS) issue final regulations implementing the average income test option under the Low-Income Housing Tax Credit (LIHTC). The organizations requested that such final regulations address deficiencies in the regulations proposed in 2020, including those pertaining to minimum set asides, modifications to unit designations, and casualty losses. Alternatively, the organizations requested that the government announce an intention to publish a new rule.
NMHC and NAA on December 16, 2020, provided comments to the Treasury Department and IRS regarding proposed regulations implementing the average income test option. This NMHC- and NAA-supported provision makes the LIHTC program more flexible and allows for more mixed-income housing by enabling the program to serve households earning up to 80 percent of area median income (AMI). Income averaging provides owners the option of reserving 40 percent (25 percent for New York City) of the units in a property for people whose average income collectively is below 60 percent of AMI.
The multifamily industry is concerned that if not modified prior to being finalized, the proposed regulations could have unintended consequences and prevent the effective use of the average income option. In particular, we are concerned that the proposed regulations: (1) pose excessive risk to violating minimum set-aside rules; and (2) prevent taxpayers from modifying income designations and, thereby: (A) trigger potential conflicts with other Federal statutes, (B) potentially prevent the use of other Federal subsidy programs, and (C) create difficulties for prospective residents on waitlists or to correct compliance issues.
To address these issues, NMHC and NAA are requesting that the final regulations: (1) treat LIHTC set-aside requirements to be met so long as 40 percent or more of the units in a project are occupied by residents earning an average of 60 percent or less of AMI; and (2) enable taxpayers to modify unit designations so long as the change: (1) does not cause the development to violate set-aside requirements; and (2) the State Housing Finance Agency approves.
Separately, the IRS on December 1 provide guidance regarding the application of the 4 percent minimum LIHTC enacted as part of the Consolidated Appropriations Act, 2021. Revenue Ruling 2021-20 “holds that a draw-down bond that is issued prior to 2021 (with draws occurring in a subsequent year), a de minimis § 42(h)(4)(A) obligation issued after December 31, 2020, or a de minimis allocation of low-income housing credit dollar amount occurring after December 31, 2020, do not cause a building to be subject to the minimum 4 percent floor."
Meanwhile, Revenue Procedure 21-43 “provides safe harbors for when an obligation described in § 42(h)(4)(A) of the Internal Revenue Code or an allocation of a low-income housing credit dollar amount is more than de minimis for purposes of the associated revenue ruling providing guidance on whether the 4 percent applicable percentage under § 42(b)(3) applies to certain low-income buildings."
Click here to access the Revenue Ruling 2021-20 and here to access Revenue Procedure 21-43.
- Sharon Wilson Géno Written Testimony on Behalf of the NMHC and NAA to the Senate Committee on Finance Hearing Entitled Tax Policy’s Role in Increasing Affordable Housing Supply for Working Families
- Low-Income Housing Tax Credit
- IRS Proposed Regulations Real Estate Letter
- Industry Letter to White House on Management Practices
- Coalition Letter Regarding EBITDA Standard for Business Interest Deductions