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Guide for Completing Form 8823 - page 116 / 197

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complete discussion.) For Section 8, tenant rent is the portion of the Total Tenant Payment the tenant pays each month to the owner for rent. Tenant rent is calculated by subtracting the utility allowance from the Total Tenant Payment. 1

Because HUD determines a tenant’s rent on a monthly basis, state agencies must determine whether the owner is in compliance with the gross rent limits each month of the owner’s current tax year.

Example 1: Gross Rent Limits on a Monthly Basis

As in Example 1 above, an LIHC property owner elected the 40-60 minimum set-aside and is a calendar year taxpayer. The imputed income limit for two bedroom units in 2006 is $31,080, The maximum rent, before consideration of fees and allowances, that the owner can charge in calendar year is .30 x $31,080, which equals $9,324.00. On a monthly basis, the owner can charge, before consideration of fees and allowances, no more than $777.00, computed as $9,324.00 ÷ 12 months.*

Fees - Provision of Services

Units may be residential rental property notwithstanding the fact that services other than housing are provided. However, any charges to low-income tenants for services that are not optional generally must be included in gross rent (Treas. Reg. 1.42-11). A service is optional when the service is not a condition of occupancy and there is a reasonable alternative. Charges for non-optional services such as a washer and/or dryer hookup fee and built-in/on storage sheds (paid month-to-month or a single payment) would always be included within gross rent. No separate fees should be charged for tenant facilities (i.e., pools, parking, recreational facilities) if the costs of the facilities are included in eligible basis. Assuming they are optional, charges such as pet fees, laundry room fees, garage, and storage fees may be charged in addition to the rent; i.e., they are not included in the rent computation.

Fees – Condition of Occupancy

Under Treas. Reg. §1.42-11(a)(3), the cost of services that are required as a condition of occupancy must be included in gross rent even if federal or state law required that the services be offered to tenants by building owners.

  • 1.

    Refundable fees associated with renting an LIHC unit are not included in the rent computation. For example, security deposits and fees paid if a lease is prematurely terminated2 are one-time payments that are not considered in the rent calculation.

  • 2.

    Required costs or fees, which are not refundable, are included in the rent computation. Examples include fee(s) for month-to-month tenancy and renter’s insurance.

Fees for preparing a unit for occupancy must not be charged; owners are responsible3 for physically maintaining LIHC units in a manner suitable for occupancy.

1 2 *HUD Handbook 4550.3, Chapter 5, paragraph 5-26(A)* Leases commonly include fees for early termination of the rental agreement. The fact that the lease contains terms for this contingency is not indicative of transient use. See IRC §42(i)(3)(B)(i) and Treas. Reg. §1.42-5(g). 3

11-2

Revised October 2009

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