Housing Credit Average Income Test Frequently Asked Questions
Housing Credit Average Income Test Implementation Webinar
The Consolidated Appropriations Act of 2018 (the Act) permanently establishes income averaging as a third minimum set-aside election for new Housing Credit developments which owners could choose in lieu of the two existing minimum set-aside elections (the 40 at 60 and 20 at 50 standards). Income averaging allows Credit-qualified units to serve households earning as much as 80 percent of Area Median Income (AMI), so long as the average income/rent limit in the property is 60 percent or less of AMI. Owners electing income averaging must commit to having at least 40 percent of the units in the property affordable to eligible households.
In this document, NCSHA provides answers to 20 frequently asked questions.
(See the related webinar, Housing Credit Income Averaging State Implementation Webinar, below.)
Last Updated April 2018
- What is income averaging?
- Must a state allow income averaging for developments applying for Credits (or seeking bond-financed Credits) in 2018 and subsequent years?
- Must a state modify its Qualified Allocation Plan (QAP) or related regulatory document(s) before allowing income averaging?
- Must the Internal Revenue Service (IRS) issue guidance before states can allow income averaging?
- Must the IRS revise Form 8609 before states can allow income averaging?
- Are existing Housing Credit developments already placed in service eligible to change their minimum set-aside election to income averaging?
- If an owner has a development in the pipeline for which it has indicated that it will elect either the 40-60 or 20-50 minimum set-aside, but for which it has not yet received a carryover allocation, can the owner change to income averaging? Can the owner seek to change either such election to include income averaging after it has received a carryover allocation, but before it has made the actual election on Part II or Form 8609?
- Can states modify the Housing Credit extended-use agreement for developments in the period following the tax credit compliance period (post-Year 15) to allow for income averaging rather than the minimum set-aside they elected at the time of Form 8609 issuance?
- Can states allow developments seeking a resyndication of Credits to elect income averaging? How would such election affect the existing low-income units?
- Is income averaging an option when acquiring and/or rehabilitating developments participating in other affordable housing programs?
- How does income averaging apply to tax-exempt bond-financed 4 percent Credit deals?
- Does income averaging apply to rent limits as well as income limits?
- What is the process for designating units at specific income levels under income averaging?
- Can an owner shift designated units from one income level to another so long as they maintain a 60 percent income level on average? How will this impact waiting list management? How should compliance monitoring staff monitor for this in practice?
- How would shifting designated units work in developments that have units of various bedroom sizes? Is there any requirement for maintaining unit size parity among various designated income levels?
- Are there additional issues states must consider in monitoring the income averaging option for 100 percent low-income developments that are not subject to annual income recertification?
- How will the next available unit rule work in developments that elect the income averaging option? Will the rule apply differently in developments with some market-rate units?
- How can a state ensure that the 60 percent of AMI average is achieved for a project, under the IRS’ definition of a project, without knowing whether the owner will treat buildings as separate projects or make a multi-building election (line 8b election on Part II or Form 8609)?
- Does the 30 percent of AMI income and rent level under the Housing Credit for purposes of income averaging conform to the Extremely Low-Income and rent restriction under the Housing Trust Fund?
- Will noncompliance with the income averaging option be reportable on IRS Form 8823?
NCSHA thanks Anthony Freedman of Holland & Knight LLP and Mark Shelburne of Novogradac & Company LLP for their contributions to this FAQ document.
Jennifer Schwartz | Director of Tax and Housing Advocacy | firstname.lastname@example.org