Recertification Income and the Available Unit Rule

November 27, 2008
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Q I recently started work at a state monitoring agency where we use the 140% income limit or the Available Unit Rule. We calculate d the same way as initial eligibility income limits, resulting in artificially high available unit rule income limits. Is the agency doing something wrong?

A Yes, says affordable housing consultant Elizabeth Moreland, an expert in the low income housing tax credit (LIHTC) program. Your state agency is applying the available unit rule incorrectly because it is calculating the recertification income limits wrong.

Income limits for initial tax credit eligibility are calculated differently from recertification tax credit income limits. According to IRS Revenue Ruling 89-2, income limits must be based on 50% area median income (AMI) limits. However, if additional income limits are needed as a result of minimum set-aside election or additional income restriction elections, the additional income limits should be calculated based on 50% of AMI.

To perform this calculation, use a conversion factor or doubling method (results are the same because one factor is an algebraic equation of the other).

For example, if you need 60% of AMI for your tax credit site, either you multiply HUD's 50% of AMI by 1.2 (60% is 120% of 50%) or multiply the 50% number by 2 and multiply that sum by 60%. To be eligible, a tax credit household must be at—-or below—-the income limit applicable to the unit's set-aside and based on the household size.

At recertification, it is possible for the household's income to have increased. This potentiality is based on Internal Revenue Code Section 42(g)(2)(D)(i) and the final available unit rule (from 1997). These provisions state that the household invokes the available unit rule if the household's income increases above 140% of the current minimum set-aside income limit for the household's size.

To arrive at this figure, determine what the current minimum set-aside income limit is for the household size and multiply that figure by 140%. If the household's income is greater than that figure, the available unit rule may be invoked.

State agencies are permitted to be more restrictive than the provisions of IRC Section 42(g)(2)(D)(i) and the final available unit rule. The agencies can use the recertification income limit on the unit's actual income restriction set-aside rather than the site's minimum set aside, Moreland adds.

Source: Elizabeth Moreland: President, Elizabeth Moreland Consulting Services, Inc.