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Guide for Completing Form 8823 - page 121 / 197

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121 / 197

Deep Rent Skewing

Example 1: 1990 Credit Allocation

Assume a 1990 credit allocation. The maximum gross rent is $500 and the owner receives a monthly payment of $600 from a tax-exempt organization to assist the household with the living expense of handicapped persons so that such persons can live independently and avoid placement in a hospital. There is no noncompliance as long as the owner provides documentation that the assistance is inseparable from the rental of the unit and complies with above rule.

Under IRC §142(d)(4)(B)11, an owner can elect to provide housing to households with incomes of 40% or less of the Area Median Gross Income (AMGI). The election is made on Form 8609, Low-Income Housing Certification, line 10d. The project qualifies if:

  • 1.

    15 percent or more of the low-income units are occupied by individuals whose income is 40 percent or less of the AMGI;

  • 2.

    The gross rent with respect to each low-income unit in the project does not exceed 30 percent of the applicable income limit which applies to the individuals occupying the unit; and

Assistance Provided Under the HOME Investment Partnership Act *or NAHASDA*

3. The gross rent with respect to each low-income unit in the project does not exceed ½ of the average gross rent with respect to units of comparable size that are not occupied by individuals who meet the applicable income limit.

*For buildings placed in service on or before July 30, 2008,* IRC §42(i)(2)(E)(i) generally provides that assistance provided under the HOME Investment Partnerships Act (HOME) *or the Native American Housing and Assistance and Self-Determination Act (NAHASDA) of 1996* with respect to any building will not be treated as a below market Federal loan if 40 percent or more of the residential units in the building are occupied by individuals whose income is 50 percent or less of the Average Median Gross Income (AMGI). *The rule is applicable for the entire extended use period under IRC §42(h)(6)(D).*

The rent restriction for all the low-income units, including the units used to satisfy the rules under IRC §42(i)(2)(E)(i), is based on the applicable income limitation under IRC §42(g). See Rev. Rul. 2004-82, Q&A #6.

*IRC §42(i)(2)(E) reads:

  • (E)

    Buildings receiving home assistance or Native American housing assistance.

  • (i)

    In general. Assistance provided under the HOME Investment Partnerships

Act (as in effect on the date of the enactment of this subparagraph [enacted Aug. 10, 1993]) or the Native American Housing Assistance and Self-Determination Act of 1996 (25 U.S.C. 4101 et seq.) (as in effect on October 1, 1997) with respect to any building shall not be taken into account under subparagraph (D) if 40

11

IRC §42(g)(4) authorizes the application of deep rent skewing under IRC §142(d)(4)(B) for IRC §42 properties.

11-7

Revised October 2009

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