Apartment Industry Applauds IRS Clarification on LIHTC Utility Payments

June 17, 2009
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The National Multi Housing Council (NMHC) and National Apartment Association (NAA) released a statement applauding an updated clarification on guidance issued by the IRS concerning utility allowance calculations on LIHTC properties that submeter.

At the urging of NMHC/NAA, last July the IRS issued regulations changing the way rents are adjusted on LIHTC properties where residents pay for their own utilities. The changes allowed property owners to use more accurate data to calculate resident-paid utilities.

“These changes were very important to the nation’s supply of affordable housing,” said David Cardwell, NMHC’s vice president of capital markets. “Rents on LIHTC properties are reduced by the amount a resident pays in utilities. Before last year’s changes, the methods the IRS used to estimate resident utility costs tended to overestimate them. This, in turn, reduced the gross rent received by property owners and was threatening the financial viability of many LIHTC properties.”

According to Cardwell, the 2008 regulations included a provision that fundamentally changed an owner’s ability to submeter. “Specifically, they state that only utilities directly paid by the resident to the utility company can be included in the utility allowance.” Today’s IRS guidance confirms that utilities paid by a renter on actual consumption in a submetered property count as resident-paid utilities under the utility allowance regulation.

The IRS’s 2008 regulation and the clarification, Notice 2009-44, are available at www.mnhc.org/goto/4821.