Final Housing Credit Utility Allowance Regulations Published

On February 27, the IRS indicated it would be publishing the Housing Credit program’s final utility allowance regulations specifically addressing submetering in the Federal Register. The final rules will go into effect on the date it is published in the Federal Register, which is expected to be on Monday, March 4, 2019.

The March 3, 2016, the IRS published final, yet temporary, regulations. These 2019 final rules make these temporary regulations permanent. In those temporary rules, the IRS realized that the proposed definition of a submetering arrangement assumed that the utility was purchased from a local utility company and didn’t include energy generated from renewable sources that the building owner (or other entity) purchased directly. Because of this, the 2016 final, yet temporary, regulations include a provision that applies the same submetering principles to energy that the owner provides to tenants after having acquired it directly from renewable sources assuming the tenant charges for this energy are comparable to local utility rates. The IRS sought comments on this provision and indicated they would be addressed when the rules were fully finalized.

The 2019 final rules make these principles permenant and clarifies 3 important points:

  • Reference Rate: In such situations, the rate that the owner charges must not exceed the HIGHEST rate at which the tenants might have obtained energy from a local utility company. Also, owners’ qualifying rate is protected from disqualification if new rates in the community are introduced.
  • Evidentary Documentation: To provide proof of this rate, the owner may rely on the rates published by local utility companies.
  • Definition: For purposes of qualifying for submetering treatment, energy is “produced from a renewable source” if it is energy that is produced from either (1) energy property described in section 48; (2) a facility described in section 45(d)(1), (2), (3), (4), (6), (9), or (11); OR (3) guidance published for this purpose in the Internal Revenue Bulletin.

The final regulations also clarify that owners need not own the source from which the utility is produced and need not qualify for, or receive, any credit under section 45 or 48 associated with the source.

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