Section 42 Low Income Housing Tax Credit (LIHTC) properties impose maximum household income limits that are based upon Area Median Income (AMI). Rent restrictions are also derived from the AMI and tenant-paid utility costs (the “utility allowance”.)

AMI varies depending location and household size and is revised annually. However, a household is not required to vacate a unit if its income later exceeds the LIHTC limits.

At least 20% of a property’s units must be subject to these income restrictions. Click here to learn more about AMI and the minimum set aside.

LIHTC MAXIMUM RENTS

Maximum allowable rents for Section 42 properties are calculated based upon a formula that accounts for (a) AMI, (b) imputed utility costs and (c) the rental unit’s number of bedrooms.*

The maximum allowable rent is equal to 30% of the Area Median Income (AMI) associated with the LIHTC apartment unit’s designated set-aside (e.g. 60% of AMI, etc.), less an imputed “utility allowance” (a budgeted amount of resident-paid utilities.) The theory is that a household earning the maximum income associated with the unit’s set-aside should not spend more than 30% of its gross income on housing and utilities costs.

The maximum allowable rent also accounts for a unit’s number of bedrooms. The AMI used for calculating the maximum rent is based upon a hypothetical household size of 1.5 occupants per bedroom for those units containing one bedroom or more, or 1.0 occupant in studio/ bachelor (0 bedroom) units.

It should be noted that the income and household size assumptions used to establish maximum rents are based upon imputed, rather than actual, amounts:

>> The LIHTC rent limits are not set based upon the tenant’s actual income, but upon the AMI of the set-aside of the unit being rented. Actual household income is used to determine eligibility for renting LIHTC units, but is not used to set the rent.

>> The household size used in selecting the applicable AMI is imputed based upon bedroom count of the LIHTC apartment unit, and does not account for the actual number of occupants of the household. Although the number of residents in a household will determine its maximum qualifying income, the number of residents does not impact the allowable rent.*


Affordable housing becomes easier to understand once you have learned its lexicon. For a guide to common industry terminology, click here for our Affordable Housing – LIHTC glossary.

Avoid the high cost of LIHTC compliance violations. TheoPRO can train your team members throughout the US to earn their HCCP (Housing Credit Certified Professional) and SHCM (Specialist in Housing Credit Management) accreditations. TheoPRO offers compliance training programs designed specifically for asset managers and property managers. Click here to learn more.


UTILITY ALLOWANCES

The utility allowance includes the tenant’s imputed costs of essential utilities, such as water, sewer, trash service, and natural gas and electricity costs associated with normal household usage, heating, air conditioning and cooking.

Utility categories that are paid for by the landlord are excluded from the utility allowance. The costs of cable television and telephone service are also excluded from the utility allowance.

Sources of data for utility allowances can vary, including:

  • Local housing authorities
  • US Department of Agriculture (USDA) Rural Housing Services (for residents of RHS buildings and tenants receiving RHS rental assistance)
  • HUD (for residents of HUD-regulated housing)
  • The HUD Utility Schedule Model. Click here for more information (Source: US Department of Housing and Urban Development).
  • Utility company estimates
  • An energy consumption model, generally prepared by a qualified engineer on behalf of the property owner

Westmont Advisors is proud to partner with LIHTC compliance experts TheoPRO to offer development compliance services and Section 42 training programs for LIHTC professionals, including property managers, developers, asset managers, syndicators and government agencies. Training and other services are available throughout the United States. Click here to learn more.

To obtain a complete listing of LIHTC income limits, Section 8 income limits, Fair Market Rents and other affordable housing data for every MSA and county in the United States, please click here to access Westmont’s LIHTC Affordable Housing Data Center.


GROSS RENT VS. NET RENT

The maximum allowable rent, based upon the 30% of AMI amount but excluding deductions for the utility allowance, is commonly referred to as “gross rent.” The maximum rent amount that can be charged to the tenant, which is inclusive of the utility allowance, is referred to as “net rent.” The tenant’s actual rent burden may not exceed the “net” amount. In those cases when landlord pays all utilities, the net and gross rent amounts will be the same.

To learn more about calculating maximum LIHTC rents, click here for a more detailed explanation, including several examples.

Westmont Advisors is proud to partner with LIHTC compliance experts TheoPRO to offer development compliance services and Section 42 training programs for LIHTC professionals, including property managers, developers, asset managers, syndicators and government agencies. Training and other services are available throughout the United States. Click here to learn more.

TheoPRO is led by founder Vivian Probst, one of the nation’s leading experts in Section 42 LIHTC compliance. Let TheoPRO and Westmont customize a program for you.

We offer training and other services throughout the United States.  Contact us to learn more.

Westmont and our partners at TheoPRO can serve your needs throughout the United States. Please do not hesitate to contact us for more information about our consulting and advisory services for real estate acquisition, asset management and tax credits, including the Low Income Housing Tax Credit (LIHTC) and Historic Tax Credit (HTC), as well as other real estate matters. Click here to learn more about our team.

Thanks for your business.
______________________

*For all post-1989 allocations. Pre-1990 allocations may have rent limits based upon family size.

 

If you are a developer, investor, property manager, government official or other real estate professional with any questions or comments, please feel free to contact us by phone at (310) 598-5900, via email at or by completing the form below.

Please let us know how you heard about us:
Personal or online referralGoogleBingYahooOther