Fees - Application Processing
Application fees may be charged to cover the actual cost of checking a prospective tenant’s income, credit history, and landlord references. The fee is limited to recovery of the actual out-of-pocket costs. No amount may be charged in excess of the average expected out-of-pocket costs of checking tenant qualifications at the project. It is also acceptable for the applicant to pay the fee directly to the third party actually providing the applicant’s rental history. See PLR 9330013, Issue 1, for an example.
Changes to HUD Income Limits
Rents must be calculated using HUD4 income limits. The lowest rents owners will be required to charge (gross rent floor) are based on the income limits in effect when the building is allocated credits, unless the owner elects5 (and notifies the housing credit agency of the election) to treat the rent floor as taking effect on the date the building is placed in service. This rule applies to properties receiving credit allocations or determination letters under IRC §42(m)(2)(D) after October 6, 1994. For allocations and determination letters after 1989 and before October 7, 1994, owners and state agencies may use a date based on a reasonable interpretation of IRC §42. Before 1990, the gross rent floor took effect at the time the building was placed in service. See IRC §42(g)(2)(A). If the income limits increase, there is no noncompliance as long as the rents are at or below the maximum rents in effect at that time. However, if the income limits are reduced, the maximum rent charged, as well as the gross rent floor, should be reviewed.
Example 1: HUD Income Limit Reduced (Credit Allocation Date)
The owner elected the 40/60 minimum set-aside on Form 8609. HUD issues reduced income limits effective 1/1/2000. The revised maximum 60% gross rent is $400, which is below the calculated maximum rent floor of $500 in effect at the time the owner received the credit allocation. The owner has been charging $450 rent and a $50 utility allowance. There is no noncompliance; owner may rely on his gross rent floor and continue to charge $500 in total rent.
Example 2: HUD Income Limit Reduced (Placed-in-Service Date)
The owner elected the 40/60 minimum set-aside on Form 8609 and elected to treat the rent floor as taking effect on the date the building was placed in service on July 12, 1999. HUD then issued reduced income limits effective 1/1/2000. The revised maximum 60% gross rent is $400, which is above the calculated rent floor of $300 at the time the owner placed the building in service. The owner may charge rent of $350 and a $50 utility allowance, for a total of $400.
Pre-1990: Gross rent for properties receiving tax credit allocations or bond-financed buildings placed in service before January 1, 1990 and for which the election6 to determine rents based on number of bedrooms was not made, may not exceed thirty percent (30%) of the HUD-determined median income limit adjusted for the actual
4 Owners have 45 days to implement revised income limits after they are published by HUD or HUD’s effective date for the new list, whichever is later. See Rev. Rul. 94-57, 1994-2 C.B. 5. See Rev. Proc. 94-57, 1994-2 C.B. 774. See Rev. Proc. 94-9, 1994-1 C.B. 555. 5 6
Revised October 2009