UNDERSTANDING INCOME LIMITS

Topics We Will Discuss Today • Definition of Project • 8609 Election, Part II Line 8b • Project Configurations • Income Limits

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Definition of a ‘Project’

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The 8609 documents the definition of Project PART II, Line 8b: either— Each building is its own project, or… Each building is part of a multiple-building project.

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Definition of a ‘Project’

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Two or more qualified low-income buildings can be included in a project only if the buildings are: 1. located on the same tract* of land, unless all units in in all buildings being aggregated in the

multiple building project are low-income units . See Sec. 42(g)(7), for scattered site projects.

2. owned by the same entity for federal tax purposes.

3. financed under a common plan for financing.

4. similarly constructed housing units.

If any of the above is different, a new project is created

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* “Tract" means any parcel or parcels of land which are contiguous except for the interposition of a road, street, stream or similar property. Otherwise, parcels are contiguous if their boundaries meet at one or more points.”

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8609 Part II

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Except of Form 8609 Instructions about Building Election 8b.

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Examples of Possible Projects 1. Single Project Consisting of One Building

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Examples of Possible Projects 2 . Single Project with Multiple Buildings

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Examples of Possible Projects 3 . Multiple Projects Under One Project Name

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The TheoPRO Group: Setting the Standard of Excellence

Single Project with Multiple Buildings

Parkview Apartments consists of 3 buildings 10 units per Building

Buildings Placed in Service beginning October 2012

Owner elected ‘Yes’ on Forms 8609 Part II 8b, to include

each of the three buildings as part of one ‘project’. All will use the same income and rent limits based on the date the FIRST building in the project is placed in service.

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Parkview Apartments 2 . Single Project with Multiple Buildings

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Multiple Projects Under One Project Name

Parkview Apartments consists of 3 separate projects

10 units per project (building)

Buildings Placed in Service October 2012.

40-60 Minimum Set-Aside

Owner elected ‘No’ on Forms 8609 Part II 8b. Thus each building is its own ‘project’ and could have its own separate income and rent limits.

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Parkview Apartments 3 . Multiple Projects Under One Project Name

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The TheoPRO Group: Setting the Standard of Excellence

EACH building is its own project unless the owner elects to make each building part of a multiple building project on the Form 8609, Part II.

All buildings that will be part of a multiple building project must be indentified on an attachment to each Form 8609 for the project.

Failure to add this information results in each building being its own project.

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The TheoPRO Group: Setting the Standard of Excellence

LIHTC Income Limits Building versus Project

Choosing ‘Yes’ or ‘No’ on 8609 question 8b.

Can the 8b election make a difference with your apartment complex’s rental revenue?

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Income Limits Choosing ‘Yes’ to 8b – Multifamily Tax Subsidy Program (MTSP)

hold harmless for income limits is determined by the place in service date of the first building in the project.

Choosing ‘No’ to 8b – MTSP hold harmless limit for each building is determined by the placed in service date of the each building. Consider: Buildings that place in service in the subsequent calendar

year may end up with lower income limits and lower maximum LIHTC rents.

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The TheoPRO Group: Setting the Standard of Excellence

Note Sure Which Election to Make on Form 8609?

IRS has issued private letter rulings that permitted late 8609

elections where there was reasonable cause.

Watch 8609s carefully.

You can assist in making the appropriate elections if you

understand the outcome/impact.

Only the project requesting PLR can rely on the ruling.

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I. The Latest on

LIHC INCOME LIMITS

STEP 1

Which Income Limit Table Do I Use?

Which Income Limit Do We Use?

Here are the choices: MTSP Dataset Current 50% or 60% Limit

MTSP Dataset HERA 50% or 60% Limit

NNMGI Income Limits?

Which Income Limit Do We Use?

Here are the choices: New Projects placing in service must use the most current year MTSP income limits within 45 DAYS after the date the limits are released.

Gross rent limits are calculated based on income limits for Section 42 projects

More to come re The 45-Day Choice!

Which Income Limit Do We Use?

Here are the choices: MTSP Dataset Current 50% or 60% Limit

MTSP Dataset HERA 50% or 60% Limit

NNMGI Income Limits?

Which Income Limit Do We Use?

Here are the choices: Existing Projects placed in service after 12/31/08 use the HIGHEST ‘Hold Harmless’ income limits since their placed in service date.

Tax credit projects use the accompanying gross rent limits.

More to come on this!

Which Income Limit Do We Use?

Here are the choices: MTSP Dataset Current 50% or 60% Limit or

MTSP Dataset HERA 50% or 60% Limit

NNMGI Income Limits?

Which Income Limit Do We Use?

Here are the choices: HERA Special income limits (for projects in

HERA-protected Metropolitan Statistical Areas (MSA) placed in service as of 12/31/08).

Gross rent limits are calculated based on income limits for Section 42 projects.

Which Income Limit Do We Use for NNMGIs? National Non-metropolitan Median Gross Income limits (for GO ZONE or RURAL projects)

Definition of ‘RURAL’ has been expanded to keep current NNMGI in place for all areas currently defined as ‘rural’ in spite of population increases up to 35,000 until 2020. More at www.theopro.com/what’snew

Gross rent limits are calculated based on income limits for Section 42 projects.

This just in!

Which Income Limit Do We Use? In some parts of the country National Non-

metropolitan Gross Income limits will be HIGHER than MSA/AMGI income limits.

Tax credit projects in these locations may use

these higher limits as long as the project is defined as ‘rural’.

Which Income Limit Do We Use?

Here are the choices: MTSP Dataset Current 50% or 60% Limit or

MTSP Dataset HERA 50% or 60% Limit or

NNMGI Income Limits?

The Income Limit Is Based On: For acquisition/rehab, generally use the date of acquisition for income limit reference.

More at TheoPRO5!

Remember:

New projects MUST use the current year income/rent limits even if they are LESS THAN prior year income limits.

HERA limits are only for projects already placed in service prior to 12/31/08.

Remember:

Existing projects income/rent limits DO NOT decrease in future years

They INCREASE when limits increase

based on the MTSP data set.

Remember:

What happens to the income limits also affects the rent limits. When MTSP income limits increase,

LIHC RENT limits increase, subject to State approval.

Once a project is placed in service LIHC income and rents DO NOT decrease.

Remember:

Your state housing finance agency or other programs may influence the income and rent limits for your project!

Example: COUNTY X $41900 MTSP 2014 Dataset 1 person 2 person 3 person 4 person 50% $18,150 $20,750 $23,350 $25,900 60% $21,780 $24,900 $28,020 $31,080 HERA 50% $18,800 $21,500 $24,150 $26,850 HERA 60% $22,560 $25,800 $28,920 $32,220

Example A The first building of a project is placed in service on February 14, 2014 4 person HERA 60% limit $32,220 4 person non-HERA 60% limit $31,080 Which income limits must be used for

a family of 4 persons? $31,080

Watch the 8609 Line 8b!!!

Example A Why can’t the HERA income limit be

used? The project was not in service as of

12/31/08!

Example B The first building of a project was placed

in service on July 20, 2011 Required to use 2011 income/rent limits!

Can HERA Limits be used? NO!

Example B If income /rent limits for the MSA

DECREASE in any future year-- Project income/rent limits DO NOT

decrease!

Example: COUNTY X $41900 MTSP Dataset 1 person 2 person 3 person 4 person 60% $21,780 $24,900 $28,020 $31,080

YEAR 1

Example: COUNTY X $41900 MTSP Dataset 1 person 2 person 3 person 4 person 60% $21,780 $24,900 $28,020 $31,080 60% $20,150 $24,750 $27,350 $30,900

YEAR 1

Must an existing project’s income limits decrease? NO!

YEAR 2

Example: COUNTY X $41900 MTSP Dataset 1 person 2 person 3 person 4 person 60% $21,780 $24,900 $28,020 $31,080 60% $20,150 $24,750 $27,350 $30,900 60% $22,780 $25,900 $29,020 $32,080 Which limits can the existing project use?

YEAR 1

YEAR 2

YEAR 3

Example: COUNTY X $41900 MTSP Dataset 1 person 2 person 3 person 4 person 60% $21,780 $24,900 $28,020 $31,080 60% $20,150 $24,750 $27,350 $30,900 60% $22,780 $25,900 $29,020 $32,080 Which limits can the existing project use?

YEAR 1

YEAR 2

YEAR 3

Can the existing project’s income/rent limits increase?

YES YES YES

Must the existing project’s income/rent limits ever decrease?

NO NO NO

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