Have Leasing Agents Follow Six Dos & Don’ts to Avoid Noncompliance
Good leasing agents can help you fill vacancies quickly with qualified households. But if your agents don’t know enough about the tax credit law, they can also create problems. For instance, there’s no way to know whether prospects are eligible until you’ve calculated and verified their income. So agents who lead prospects to believe they can live at your site could get you into trouble if it turns out the prospects aren’t eligible.
Your leasing agents don’t need to be tax credit experts. However, they need to understand how the requirements of the tax credit program affect their jobs. Here are a few pointers you can use when training your leasing agents to help bring them up to speed.
DO Rent Minimum Number of Units to Qualified Low-Income Households
Tell your leasing agents they must rent a certain number of units to qualified low-income households. If your agents don’t rent enough units to such households, the owner will lose credits and the site may not even qualify for the tax credit program.
The tax credit program has two main requirements that your leasing agents must help you to meet when renting your units and help you to maintain during the remainder of the compliance period. Here’s a rundown.
Minimum set-aside. Tell your agents how many units they must rent to qualified low-income households to meet your building’s or site’s minimum set-aside. For example, if the owner of a 50-unit site elected on its IRS Form 8609 to meet the 40-60 test, tell your agents that they must rent 20 of the units to households earning no more than 60 percent of area median gross income. If the owner elected on the Form 8609 to meet the set-aside on a per-building basis instead, tell them how many units in each building they must rent to low-income households. Finally, discuss the deadline for meeting the set-aside, which must be by the end of either the placed-in-service year or the following year. Stress to your agents that if you don’t meet the set-aside on time, your site won’t qualify for the tax credit program and the owner can’t claim any credits.
Also tell your leasing agents that they’ll have to do their part in bringing in enough qualified low-income households to maintain the minimum set-aside throughout the remainder of the compliance period. Explain that as vacancies occur, you’ll tell them how many of the vacant units they must rent to qualified low-income households. If your building’s or site’s set-aside falls below the minimum in a later year, the IRS may recapture all the credits the owner ever claimed for the building or site.
Establishing and maintaining the first-year fraction. If you’re establishing your building’s first-year fraction, make sure your leasing agents know what the owner’s target is. For example, if the target for a 10-unit building is 75 percent, tell your agents they must rent eight of the building’s 10 units to qualified low-income households. Explain that if the agents miss the target, the owner won’t be entitled to claim all the credits it was allocated for the building.
Also tell your agents how important it is to keep your building’s applicable fraction from dropping below its first-year fraction in each remaining year of the compliance period. If you met the owner’s target in the first year but your building’s applicable fraction in a later year falls below the first-year fraction, the owner will lose credits for the difference.
DON'T Lead Prospects to Believe They’re Eligible
Tell your leasing agents they must never imply to prospects that they’ll be eligible for the tax credit program. Your agents must understand that only income-eligible prospects can live in a low-income unit at a tax credit site. To determine whether prospects are income-eligible, your staff must first calculate and verify their income.
It’s not uncommon for a prospect to ask an agent for an opinion about her eligibility. The prospect might say, “I need this apartment badly and I don’t have much money. I should be eligible, right?” But your agents shouldn’t offer an opinion. If your agents lead prospects to believe they’re eligible before you’ve determined whether they really are, your agents can get you into trouble. Instead, have them tell prospects that it’s impossible to make predictions because the eligibility rules are complicated.
DO Comply with Fair Housing Laws
Tell your leasing agents that if they violate fair housing law at a tax credit site, the owner faces two additional penalties on top of the penalties owners of conventional sites face.
First, if your state housing agency discovers that you’ve violated fair housing law, it must report you to the IRS for noncompliance. This will put the owner’s tax credits in jeopardy.
Second, if you get cited for a fair housing violation at your current site, it could come back to haunt the owner in the future. That’s because state housing agencies ask whether an owner has any fair housing violations on its record. If it does, the agency may deny the owner tax credits for this reason.
To avoid problems, remind agents never to discriminate against a prospect because of race, sex, color, disability, religion, national origin, or familial status. Also, mention any additional protected classes under state or local fair housing law.
DON'T Turn Away Prospects Because They Hold Section 8 Vouchers or Certificates
Warn your leasing agents against turning away prospects who hold Section 8 vouchers. If your agents reject prospects because they hold Section 8 vouchers, your site will fall into noncompliance. But make sure your agents understand that they’re not required to accept Section 8 prospects under all circumstances. If prospects are over-income or if accepting them would violate the student rule, you can reject them just as you reject other ineligible prospects.
DO Ask Questions When Dealing with Students
Have your leasing agents ask prospects questions to find out whether the student rule would make them ineligible. For instance, if your agents learn that two prospects are full-time students, your agents should ask the prospects if they’re married and if they file a joint tax return. If the prospects answer yes, their household would fall under an exception to the student rule.
If you accept an ineligible student household, your site will fall into noncompliance and the owner won’t be able to claim credits for the unit. And, if your state housing agency discovers after the owner has already claimed credits for a unit that the household living there is ineligible under the student rule, the IRS may recapture credits for that unit back to year one of the credit period.
With so much at stake, it’s also a good idea to have your leasing agents give prospects a form to sign in which they answer questions about their student status. Using such a form will help your agents avoid accepting ineligible prospects and satisfy auditors in case you do. For a student-status form you can use at your site, see “Stay on Top of Student Status to Avoid Tax Credit Loss.”
DO Follow NAU Rule When Applicable
For mixed use sites, alert your leasing agents when you have any over-income households at your site. This way, they can follow the next available unit (NAU) rule to avoid tax credit loss.
When the NAU rule applies, your leasing agents must rent the next available market-rate or low-income unit of comparable or smaller size in the same building to a qualified low-income household. By knowing how the NAU rule works and when it applies, your agents will help keep the owner’s credits safe when renting your units.