HUD Releases 2015 Multifamily Tax Subsidy Income Limits

On March 6, HUD released the 2015 income limits, available at huduser.org. According to Revenue Ruling 94-57, you have 45 days to begin using them to certify and recertify low-income households at your tax credit site. This means this year’s income limits must be implemented no later than April 19, 2015. Here are some site management issues affected by changes in income limits.

According to the numbers, state and national area median gross incomes (AMGI) increased. Nationally, AMGI increased from $63,900 for FY 2014 to $65,800 for FY 2015. That’s a 2.97 percent increase. In metro areas, the AMGI increased by 3.63 percent, going from $66,000 in FY 2014 to $68,400 in FY 2015. In non-metro areas, the AMGI increased by 3 percent, going from $52,500 in FY 2014 to $54,100 in FY 2015.

In addition, at the county level, there is an overall average increase in multifamily tax subsidy project, or MTSP, income limits. This is the income limit that will be used in MTSPs that are new and/or involved in layered financing. The average increase is 2.59 percent.

About 83 percent of counties saw an increase in MTSP income limits for new projects and layered financing, and 1 percent of counties remain unchanged. For the 83 percent of counties with an increase, the average increase was 3.5 percent. And for counties with a decreased MTSP income limit, the average decrease was 1.88 percent.

The other major category of MTSP income limits is for those properties placed in service before Jan. 1, 2009, which includes the HERA Special and Hold Harmless provisions. Fifty-eight percent of counties had an increase in their MTSP income limits and the remaining counties saw no change. The average increase was a lower rate of 1.71 percent.

How Income Limit Changes Affect Site Management

It’s important to keep track of the changes to your area’s income limits because you’ll use these numbers to certify and recertify low-income households. The income limits you’ll use are set at a percentage of area median gross income (AMGI), adjusted for household size. The percentage of AMGI your site must use depends on the site owner’s agreement with your state tax credit agency. It’s usually 40 percent, 50 percent, or 60 percent of AMGI.

The “very low-income” figures in the HUD release reflect 50 percent of AMGI, adjusted for various household sizes. Then you determine from the owner’s agreement what percentage of AMGI applies. For example, if your low-income households are supposed to be at or below 50 percent of AMGI, you can just use the very low-income row. Move along the row until you reach the figure below the appropriate household size (for example, three-person). That number is your income limit for households of that size earning no more than 50 percent of AMGI.

If your low-income households are supposed to be at 60 percent of AMGI, multiply the very low-income number for each household size by 1.2 (50% x 1.2 = 60%). If your households are supposed to be at 40 percent of AMGI, multiply the very low-income number by 0.8 (50% x 0.8 = 40%).

Beyond certification and recertification, however, the income limits also affect the rent you charge for your low-income units. In addition, they directly affect compliance with the “next available unit rule” and your ability to find qualified applicants to fill your low-income units.

Charging Rent

The rent you charge households to occupy low-income units is based on 30 percent of the income limit for the appropriate household size in your site’s location. In other words, tax credit rent correlates to income limits rather than to actual household income, as is the case with other housing programs—changes in income limits affect the rents you can charge.

An owner determines a property’s current income limits from the MTSP Income Limits chart issued by HUD. The owner multiplies the site’s income limits for the imputed household size by 30 percent and divides the result by 12 months to determine a unit’s maximum monthly gross rent. When dividing the maximum annual rent by 12, round down to the nearest whole dollar. For a resident responsible for paying some or all of his utilities directly to the utility provider, subtract the approved utility allowance from the monthly gross rent to determine the maximum monthly tenant rent.

For sites placed in service in 1990 and later years, there is a gross rent floor, which means that the rent would not fall below the original gross level, even if income levels decrease. While the new limits must be used for income eligibility, the rent would not drop below original approved levels. Revenue Ruling 94-57 gives the formula for the gross rent floor as either the rent in effect on the date of allocation or the placed in service date.

In addition as a result of the 2008 Housing and Economic Recovery Act (HERA), a general hold-harmless rule was established. HERA does not allow the income limit for a project to be less than the project’s income limit “determined” from the previous year. In other words, once your property is placed in service, it is not subject to any decreases in income limits and therefore, neither can rents decrease.

Complying with Next Available Unit Rule

Changes in income limits also affect compliance with the next available unit rule. According to the rule, if a household’s income exceeds 140 percent of the current income limit at the time of recertification, the unit can still be counted as a low-income unit provided that the unit remains rent restricted and the next available unit of comparable or smaller size is rented to a qualified low-income household.

Therefore, if limits go down, to safeguard the owner’s tax credits, you must be watchful of whether a household’s income exceeds 140 percent of the income limits at the time of annual recertification. With lower income limits, it becomes easier for a household’s income to exceed the 140 percent ceiling. When this happens, under the rule, you must rent the next available unit of comparable or smaller size in the building to a qualified low-income household in order for the site owner to continue claiming credits for the over-income unit.

Finding Qualified Applicants

Generally, if the income limits for your area drop, it may become more difficult to find applicants whose incomes make them eligible to occupy your low-income units. Still, you’ll have only 45 days to begin using these lower limits. In the meantime, you may want to increase your marketing efforts to make sure you’ll have a large enough pool of qualified applicants to consider after the switch.

Also, if the income limits in your area have increased, you may want to go back through any files denied over the past few months to see if any slightly over-income households may now qualify under the new limits.