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IRS Clarifies Income Limit Determination for Average Income Test

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On January 29, the IRS published Revenue Ruling 2020-04 clarifying the determination of income limits under the LIHC program’s Average Income Test. The ruling indicates we are to continue to base our income limits on HUD’s very low-income limit (VLI or 50% AMGI) , specifically stating… “… this revenue ruling holds that HUD’s very low-income calculation, as adjusted by family size and consistent with the methods provided in Rev. Rul. 89-24, is to be used as the basis for determining the full range of income limits under the average-income set-aside. For the average income test under § 42(g)(1)(C), the 20, 30, 40, 50, 60, 70, and 80 percent of AMGI income limitations must be calculated as follows—

  • Twenty (20) percent limit: 40 percent or less of the income limit for a very low-income family of the same size.
  • Thirty (30) percent limit: 60 percent or less of the income limit for a very low-income family of the same size
  • Forty (40) percent: 80 percent or less of the income limit for a very low-income family of the same size.
  • Fifty (50) percent: equal to or less than the income limit for a very low-income family of the same-size.
  • Sixty (60) percent: 120 percent or less of the income limit for a very low-income family of the same size.
  • Seventy (70) percent limit: 140 percent or less of the income limit for a very low-income family of the same size.
  • Eighty (80) percent limit: 160 percent or less of the income limit for a very low-income family of the same size.”

The ruling also addresses its application for a credit amount allocated before the guidance was published stating that if a taxpayer submitted an application using calculations that resulted in income limits higher than under the VLI calculation, the calculations were reasonable which means they were based on other HUD income calculations, and were allocated credits based on that, the dollar amounts for the income limits will not be less than those selected by the taxpayer. In effect, the taxpayer will be able to use the approved, reasonable limits until the VLI calculations under the revenue ruling exceed those implemented by the taxpayer.

To access this revenue ruling, CLICK HERE.

If you need more information on the Average Income Test, view Housing Credits 525: Understanding the Average Income Test contained at the Housing Credit Training Center. CLICK HERE to learn more