The Consolidated Appropriations Act of 2018 created 2 important changes to the Housing Credit Program… Increases in Available Credit and Income Averaging… both of which are explained here.
Both of these provisions were originally part of the Cantwell-Hatch and Tieberi/Curbelo-Neal bills, also known as The Affordable Housing Tax Credit Improvement Act.
Increase in Available Credits
Starting this year, the 9% credit is temporarily increased by 12.5%. This increase is effective for the next 4 years. This year, the pool of available credits is the greater of $2.70/person or $3.110 million. For the remaining 3 years, inflation will be factored in so these amounts could increase further. Unless there is Congressional action, after 2021, the allocation amounts will revert back to the 2017 levels adjusted for inflation.
Income Averaging
The Act permanently establishes income averaging as an additional minimum set-aside election for new Housing Credit developments. Income averaging allows qualified Housing Credit units to serve households earning as much as 80% of AMGI as long as the average income/rent limit in the property is 60% of AMGI. Owners electing income averaging must commit to having at least 40% of the units in the property affordable to eligible households.To meet this election, an owner can designate units at 20%, 30%, 40%, 50%, 60%, 70% or 80% of AMGI provided that the overall percentage of Housing Credit units average to no more than 60% AMGI.
Examples:
10-unit property with 5 units at 80% AMGI and 5 units at 40% AMGI
[(5 units x 80%) + (5 units x 40%)] = 400% + 200% or 600% ÷ 10 total units = 60%
10-unit property with 3 units at 80%, 5 units at 60% and 2 units at 30%
[(3 units x 80%) + (5 units x 60%) + (2 units x 30%)] = 240 + 300 + 60 or 600 ÷ 10 total units = 60%
The averaging is done without regard to the size or square footage of the unit. However, if there are market rate units, the applicable fraction will still be based on the lower of the unit fraction and floor space fraction, so determining the size of the units on properties electing the income averaging minimum set-aside, will still need to be done with this in mind.
The Available Unit Rule (AUR) was also modified with this election specifically stating a unit is over income if the occupant’s income exceeds 140% of the greater of 60% AMGI OR the designated limit applicable to the unit AND the next available unit of comparable or smaller size must be rented to EITHER a tenant…
- If the unit was previously Housing Credit… whose income does not exceed the designated limit applicable to the new unit, if it was previously a Housing Credit unit or
- If the unit was NOT previously Housing Credit… at an income level that would not cause a violation of the 60% average..
And finally, it should also be noted that similar changes were NOT made to the tax-exempt bond rules, so some care will have to be exercised to assure that a project that elects income averaging still passes at least the 20-50 or 40-60 test for bond purposes.
Of course, this is all brand-new with many unanswered questions. We will be discussing both at the upcoming 2018 National Compliance Professional (NCP) Conference with a special focus on the new income averaging minimum set-aside election. In the meantime, I will use this forum and my newsletter, The Compliance Monitor, to continue to dissect these rules as we learn more.