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Guide for Completing Form 8823 - page 120 / 197





120 / 197

no subsidy is provided, the tenant may not pay more than the LIHC rent ceiling.

Example 2: Tenant’s Portion of Rent Exceeds Rent Limit

A Section 8 household with an annual income of $18,000 applies for an LIHC unit for which the rent is restricted to $500 and for which the market rate rent is $750. Assistance will pay a maximum of $500, and the applicant’s portion is $600 (40 percent of income). Since the applicant is required to pay $600, Section 8 will pay $150. There is no noncompliance.

Note: This example reflects HUD’s requirement under the Section 8 housing choice program. The family share may not exceed 40 percent of the family’s share monthly adjusted income when the family initially moves into the unit or signs the first assisted lease for a unit. Additional information available at www.hudclips.org/sub_nonhud/jtml/pdfforms/7420g06.pdf.

Rural Development (FmHA) Rents

Originally, the rent restrictions for projects with Rural Development assistance were computed using the general rules for LIHC housing. Beginning in 1991, however, gross rent does not include any rental payment to the owner of the unit to the extent such owner pays an equivalent amount to the USDA Rural Housing Service9 under section 515 of the Housing Act of 1949. See IRC §42 (g)(2)(B)(iv). In other words, as long as the owner pays Rural Development the rent amount over the limit (all of the overage) that unit is in compliance.

Example 1: Rent Above Limit (Owner Pays Rural Development, formerly known as FmHA)

Assume a 1991 credit allocation to a property with Rural Development assistance. The maximum gross LIHC rent is $500 and the household’s calculated rent under Rural Development regulations is $650, which the owner charges. The owner provides documentation that the $150 above the tax credit maximum has been remitted directly to Rural Development. There is no noncompliance.

Supportive Services

After 1989, gross rent does not include any fee for a supportive service paid to the owner by any governmental program or tax-exempt organization if the amounts paid for rent and assistance are not separable.10 Under Treas. Reg. §1.42-11, supportive services mean any service designed to enable residents to be independent and avoid placement in a hospital, nursing home, or intermediate care facility for the mentally or physically handicapped. Examples of supportive services include transportation, housekeeping, or planned social activities. Supportive services do not include continual or frequent nursing, medical, or psychiatric services.

9 10 Formerly known as the Farmer’s Home Administration. IRC §42(g)(2)(B)(iii) and Revenue Reconciliation Act of 1989.


Revised October 2009

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