IRS Issues Guidelines on Submetering and Utility Allowances

May 13, 2009
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The IRS has issued Notice 2009-44, which lays out the guidelines for charging for submetering in low-income tax credit housing units. “The notice clarifies that utility costs paid by a tenant and based on actual consumption in a submetered unit should be treated as paid directly by the tenant for the purposes of Section 42(g)(2)(B)(ii),” explains tax credit housing expert Elizabeth Mooreland.

Under Section 1.42-10, which was amended by Treasury decision 9420, if the cost of any utility (other than telephone, cable television, or Internet) for a residential rental unit is paid directly by the tenants, and not by or through the owner of the building, the gross rent for that unit includes a utility allowance. Determining the applicable utility allowance depends on what type of housing rental assistance is received.

The change is retroactive for taxable years beginning on or after July 29, 2008, when the notice was published, and will apply to building owners as of January 1, 2009, Mooreland adds.