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Review of the LIHTC 140% Rule

Written by Cathy Turner, Spectrum Enterprises

We are all well aware that when the income of a low income tenant rises above the 140% limit   the next unit comparable size or smaller must be rented to a low income tenant.

What you may not be aware of is that the IRS has defined how a unit is determined same size or smaller.   In Regulation §1.42-15 it states “For purposes of determining whether a residential unit is comparably sized, a comparable unit must be measured by the same method used to determine qualified basis for the credit year in which the comparable unit became available.    The qualified basis is either the unit fraction or square footage fraction, whichever is smaller.

To clarify, a manager responsible for leasing market and low income units must know how the owner has elected to take the credits each year.  Do you know if the credits at your property were claimed based on the unit fraction or square footage?  If not, then you could make an error with this rule.

Here is an example of why you need to know.

The Smith household in unit 5 certified to an income above the 140% limit at the 2/1/12 annual certification.  The Smith family lives in a two bedroom unit that is 875 square feet. On April 3, 2012, a two bedroom market unit becomes vacant (unit 10).  Unit 10 is 900 square feet.

If claiming credits based on unit fraction both units are the same size.  Unit 10 must be rented to a low income unit or the 140% rule will be violated.

If claiming credits based on square footage, unit 10 is slight larger than unit 5.  Therefore, unit 10 can continue being rented as a market unit.


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