Section 42 low income housing tax credits are useful tools for funding the development, acquisition and rehabilitation of rent-subsidized Section 8 properties. There are obvious benefits to twinning LIHTC with project-based Section 8 HAP contracts and project based vouchers (PBV), but contradictions between these programs also elevate the risk of regulatory compliance errors.
The affordable housing compliance experts at TheoPRO have identified three key issues:
1. Section 8 households may have incomes that exceed Section 42 limits
Section 8 and LIHTC projects are subject to different rules for determining maximum allowable resident incomes. These differences can pose problems with Section 42 acquisition-rehab properties, as Section 8 households cannot be evicted for having incomes that exceed LIHTC maximums.
When conducting acquisition due diligence, do not presume that all Section 8 residents will qualify for Section 42 housing. Each unit should be reviewed for LIHTC compliance.
To learn more about Section 42 rent and income restrictions, click here for an introduction. To learn more about the specifics of calculating maximum LIHTC rents, click here for a more detailed explanation, including several examples.
For 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.
2. LIHTC and Section 8 student rules are substantially different
Whereas Section 8 considers part- and full-time student status for household members who are enrolled in higher education, the Section 42 program considers all household members who are full-time students, including minors who are attending K-12 programs.
It is imperative to consider the rules of both programs. When conducting due diligence for acquisitions, each unit should be reviewed for student status. One should not presume that a student household that qualifies for Section 8 is also eligible for LIHTC housing.
3. All Section 8 households must be recertified annually
Since passage of the Housing and Economic Recovery Act of 2008 (HERA), tax credit properties that do not have market-rate units have been exempted from federal income recertification requirements. (State agencies are able to impose their own additional requirements.)
But Section 8 households must be recertified every year, regardless of the LIHTC rules. Because of the differences between Section 8 and LIHTC program regulations, it is essential to track each individual unit for its own compliance requirements. Some Section 42 managers elect to annually recertify all units in an effort to avoid violating these rules.
Avoid problems by being proactive
Internal Revenue Code program regulations include potentially severe consequences for LIHTC violations, including the forfeiture of tax credits for rental units that are not properly qualified. Engaging the services of an outside compliance professional can reduce the number of errors and avoid costly problems.
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.
TheoPRO offers educational and consulting services that specifically address the issues that are associated with combining different affordable housing funding programs, including Section 8, RD (USDA Rural Development), RAD (Rental Assistance Demonstration), HOME funds (HOME Investment Partnerships Program) and Housing Trust Funds. Please 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.
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 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.
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.
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