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Guide for Completing Form 8823 - page 115 / 197





115 / 197


*Determinatio n on a Tax Year Basis*

*Determinatio n on a Monthly Basis*

Chapter 11 Category 11g Gross Rent(s) Exceed Tax Credit Limits

This category is used to report noncompliance with the rent restrictions outlined in IRC §42(g)(2). Items to consider when determining whether the rent is correctly restricted include services provided, revisions to HUD income limits, rent calculation methods, changes in the tenant’s income, Section 8 tenants, Rural Housing Service (formerly FmHA) rents, supportive services, and deep rent skewing.

*Under IRC §42(g)(2)(A), a* unit qualifies as an LIHC unit when the gross rent does not exceed 30 percent of the imputed income limitation applicable to such unit under IRC §42(g)(2)(C). The income limit for a low-income housing unit is based on the minimum set-aside election made by the owner under IRC §42(g)(1), but *is never less than the income limit applicable for the earliest period the building (which contains the unit) was included in the determination of whether the project is a qualified low-income housing project.

Because the Code defines the maximum gross rent as a percentage of the imputed income limitation (which is an annual amount) and the qualified basis for computing the credit is determined as of the close of the owner’s taxable year, state agencies must determine whether the owner is in compliance with the gross rent limits on a tax year basis.

Example 1: Gross Rent Limits on a Tax Year Basis

An LIHC property owner elected the 40-60 minimum set-aside and is a calendar year taxpayer. 2006 is the first year of the credit period and the imputed income limit for two bedroom units is $31,080. The maximum rent, before consideration of fees and allowances, that the owner can charge in calendar year 2006 is .30 x $31,080, which equals $9,324.00.*

*IRC §42(g)(2)(B) defines gross rent and excludes the following amounts, which are listed here and discussed separately within this chapter:

1. Payments under section 8 or a comparable rental assistance program;

  • 2.

    Fees paid to the owner by any governmental program of assistance for supportive services; and

  • 3.

    Rental payments to the owner to the extent the owner makes equivalent payments to the Rural Housing Service under the section 515 program.

IRC §42(g)(2)(B) also requires that the gross rent include any utility allowance “determined by the Secretary after taking into account such determinations under section 8 of the United State Housing Act of 1937.” (See chapter 18 for


Revised October 2009

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