The Internal Revenue Service (IRS) recently published a proposed rule for Low-Income Housing Tax Credit Average Income Test (AIT) regulations. The proposed rule requires that all low-income units in a property average 60 percent of area median income or less in order to meet the minimum set-aside requirement. If a unit goes out of compliance for any reason, the proposed rule would provide the taxpayer up to 60 days after the end of the year in which the average was violated to take a mitigating action to prevent the project from violating the minimum set-aside and being disqualified from receiving credits for that year (or ever, if the violation occurs in year one). The rule provides two forms of mitigating actions, and prohibits the taxpayer from changing the designated imputed income limitation of units in order to reestablish compliance with the minimum set-aside.
The rule also provides that if a project has multiple over-income homes, it does not need to meet the next-available-unit rule in a particular order. The proposed regulations would also provide federal flexibility in initially designating units, which needs to occur by the end of the first taxable year. Thereafter, the IRS proposes limits on subsequent changes and a process to address units going offline.
The Low-Income Housing Credit Average Income Test Regulations Proposed Rule can be found here.