Horizons Fall/Winter 2019

As described, depending on when a project fails to meet the set aside test, either LIHTC cannot be claimed or must be recaptured (“paid back”) for the entire project. It is possible for one unit of a project to fall out of compliance, causing the unit to cease providing credits and potentially require recapture for credits relating only to that unit, not causing a problem for the whole project. This is the case as long as there are enough other low-income units to still meet the minimum set-aside test. In the 10 unit example from earlier, if five units were originally at or below 60% of AMI and one unit was no longer rented to a low-income household, the project would still meet its minimum set aside since 40% (4 of 10) of the units still qualify. Under IA, it is not currently known what happens when a unit slips and causes the average of the unit designations to become 61% or greater. Does this cause problems for the one unit only or for the entire project? The industry is awaiting guidance from IRS and Treasury to definitively answer this question. Another challenge is that state housing finance agencies are enacting IA differently. Although the LIHTC program is a federal program governed by IRC Section 42, the IRS and Treasury have delegated oversight and implementation to each state’s housing finance agency. Therefore, each state has authority on whether to implement IA and determine the specifics relating to implementation as long as they at least meet the federal standards. This has created complexity for everyone working in the industry since each state is implementing IA slightly differently, or not at all. It is likely that as experience is gained working with IA, the states will gradually conform to what resembles an industry average or standard. Having more standardized rules across different states and receiving more federal guidance will help the industry work towards constructing and rehabilitating more low-

There are financial and social benefits to having this flexibility available. Having tenants at higher AMI ranges allows for a higher amount of rent to be charged, increasing financial feasibility over the lifetime of the project. The households in the AMI ranges of 70% and 80% have been historically underserved but are still considered low-income and are in need of affordable housing options. IA looks to allow tax credits for providing housing in these higher AMI ranges so long as the project averages to 60% of AMI. Qualifying under the LIHTC program is complex and requires careful planning and monitoring, and this minimum set- aside discussion is only one piece of the overall requirements. While the calculation of the average AMI is relatively simple as described in the law, there are nuances to the program that increase its complexity and have caused many in the industry to hesitate implementing IA in their projects. ∙ There is one big question where the industry needs additional guidance from the IRS/Treasury ∙ Each state housing finance agency drives how, when and if IA is implemented in their state Two issues increasing the complexity are:

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

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