You have 45 days to begin using them to certify and recertify low-income households at your tax credit site. Here are some site management issues affected by changes in income limits.
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. When HUD releases the numbers, 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.
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.
Income limits drop. If the income limits go down and there's no change in utility allowances, the maximum allowable gross rent you can charge also goes down. You should be aware that you must lower your rents accordingly within 45 days of any decrease in income limits. Otherwise, you can be cited for noncompliance for charging incorrect rents. As a result, you may have to lower the amount you charge households to occupy their low-income units.
Income limits rise. If the income limits for your area increase, you won't violate the tax credit law if you don't change your rents. When limits go up, the maximum allowable rent you can charge a household also goes up as long as there's no increase in utility allowances. You can start charging higher rents for low-income units.
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.
