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Income Limits and Rental Rates

Written by Deb Bechetti, Spectrum Enterprises

Everyone new to the Tax Credit program always asks where the income limits come from and how are the rents calculated?

The Tax Credit program uses the HUD Section 8 income limits.  The income limits are updated once a year.  To calculate the 2012 income limits, HUD used the 2005-2009 5-year ACS data.  Once the Section 8 limits are calculated and adjusted for family size, HUD then takes 120% of the 50% (very low) income limit to obtain the 60% Tax Credit income limit.  The income limits must be used no later than 45 days after the published date.  You must always compare the applicable income limit to the total anticipated income of the household you are trying to qualify.

Calculating the maximum rental rates can be a little complicated.   The maximum that you can charge is tied into the income limits and will therefore change anytime the income limits change.  They are based on a calculation of 1.5 people per bedroom.  For a studio apartment, you will use the 1 person limit.  For a one bedroom apartment, you will use the 1.5 person income limit, for a two bedroom apartment, you will use the 3 person limit to calculate the maximum rental rate.  As HUD does not publish a half person limit, you will have to calculate that yourself.

For a one bedroom unit, you would add the 1 and 2 person income limits (at the applicable percentage) and then divide by 2 to get to the 1.5 person limit.  You would then divide it by 12 to get a monthly amount and then multiply by .3 to get to the monthly maximum allowable rental rate.  Please keep in mind that the maximum allowable rental rate must be reduced by the utility allowance.

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