Horizons Fall/Winter 2019

INDUSTRY UPDATE REAL ESTATE

Income Averaging Offers Flexibility Many Hope will Help Cover the Affordable Housing Shortfall by Tim Anderson, CPA

T he Consolidated Appropriations Act of 2018 created a third minimum set-aside option for Low-Income Housing Tax Credit (LIHTC) projects known as Income Averaging (IA). The LIHTC program was created in 1986 and is an indirect federal subsidy that is used by the private sector to finance construction and rehabilitation of affordable rental real estate. Projects financed with LIHTC must meet the requirements under IRC Section 42 for at least 30 years after construction is complete. These requirements include meeting an elected minimum set-aside test.

Two Existing Minimum Set-Aside Tests In order for a project to qualify under the requirements of the LIHTC program and receive federal tax credits, the project must meet a minimum set-aside test. Previous to the enactment of IA, there were two options available: either the 40-60 test or the 20-50 test. The most commonly chosen of the two tests is the 40-60 test. To pass the test, at least 40% of the units of the project must be rent- restricted and occupied by households with income levels at or below 60% of the Area Median Income (AMI).

32 Income Averaging Offers Flexibility Many Hope will Help Cover the Affordable Housing Shortfall