Agenda - Council Work Session - 01/10/2012

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Once made, the choice between the 20 percent at 50 percent formulation and the 40 percent at 60 percent formulation is irrevocable. Note: The actual number of restricted units within the project must be consistent with the initial applicable fraction selected at the time of reservation. Also, IRS defines each building as a separate project unless owner elects to treat certain buildings as a multiple -building project on line 8b of IRS form 8609. See the instructions for making a multiple -building election on form 8609. J. Affordable Rents The rent restrictions for the units are governed by Section 42 and regulations, rulings and other announcements by the IRS. The following summary is not intended to be comprehensive. A violation of the tenant income or rental restrictions in Section 42 may result in project ineligibility or a reduction in basis and/or credit amount. Rent Restriction: For a unit to count as a low-income unit, the gross rent may not exceed 30 percent of the imputed tenant income limitation. The imputed income limitation applicable to a unit equals the permissible income limitations that would apply if the number of individuals occupying the unit were: 1. One individual in the case of a studio apartment; and 2. 1.5 individuals per bedrooms in the case of a unit with one or more separate bedrooms. Therefore, the rent restrictions applicable to a low-income unit are determined by which test is elected and how many bedrooms are contained in the unit. Current income limits, as derived from the Department of Housing and Urban Development, for Minnesota counties are described in the Rent and Income tables found in the Multifamily Common Application Reference Materials section. For tax credit compliance purposes, "gross rent" means all payments by the tenant, including non -optional charges and payments for utilities other than telephone and cable. If the tenant pays utilities directly, the maximum rent that can be paid to the landlord is reduced by a utility allowance determined in accordance with rules under Section 8 of the U.S. Housing Act of 1937 (Section 8). IRS Regulations (Section 1.42-10 Utility Allowance, as amended) provides guidance relating to Utility Allowances and lays out options for establishing them. The options, depending on assistance or regulation characteristics of the project or the tenant, may require use of an RD utility allowance, a HUD utility allowance, a PHA/HRA utility allowance, an Agency Estimate, a HUD utility Schedule Model, an Energy Consumption Model, or a utility allowance produced with information obtained through a local utility company in a manner consistent with Section 1.42-10. Utility allowances must be updated at least annually. Federal, state and local rental assistance payments (such as Section 8 payments) made on behalf of the tenant are not included in gross rent. Additional rent restrictions may apply if the award of tax credits was made based on such additional restrictions. K. Tenant Eligibility To be a low income unit for purposes of determining the qualified basis, the tenant must have income at or below 50 percent of the applicable MTSP limits if the 20/50 Test is elected, or 60 percent of MTSP limits if the 40/60 Test is elected. The unit must be rent restricted as set forth above, and the unit must be suitable for occupancy. The combined household income of all tenants occupying a tax credit eligible unit must be less than or equal to the elected income requirements as shown on Rent and Income Limits. Section 42 does not allow households comprised of full time students to qualify as low-income units unless certain exceptions are met. The student exceptions are found in Section 42 (i)(3)(D): 19 12012 Housing Tax Credit Procedural Manual Rev. 04/2011