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Guide for Completing Form 8823 - page 122 / 197

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percent or more of the residential units in the building are occupied by individuals whose income is 50 percent or less of area median gross income. Subsection

  • (d)

    (5)(C) shall not apply to any building to which the preceding sentence applies.

  • (ii)

    Special rule for certain high-cost housing areas. In the case of a building

located in a city described in section 142(d)(6) [26 USCS § 142(d)(6)], clause (i) shall be applied by substituting "25 percent" for "40 percent".

For buildings placed in service after July 30, 2008, assistance under HOME and NAHASDA are not characterized as below market Federal loans and IRC §42(i)(2)(E) was removed from the Code under section 3002(b) of the Housing Assistance Tax Act of 2008.*

In Compliance

A unit is in compliance when the rent charged does not exceed the *gross rent limitations on a monthly basis.*

Example 1: Provision of Optional Services

An LIHC property provides hot meals twice a day for the convenience of its tenants in a common dining facility. They charge a nominal fee to cover their costs, but do not include the cost in the rent charged for the apartments. Each unit in the property includes a fully functional kitchen.

In this case, a practical alternative exists for tenants to obtain meals other than from the dining facility, and payment for the meals in the common dining facility is not required as a condition of occupancy. Thus, the cost of the meals is not included in gross rent for purposes of IRC §42(g)(2)(A) and Treas. Reg. §1.42-11(b).

Example 2: Fee for Late Payment of Rent

A tenant pays the maximum rent of $525 for a one bedroom unit. The tenant did not pay the rent timely and was charged a late fee of $35, as stated in the lease.

The $35 late is a penalty for failure to perform according to the lease agreement and, therefore, the fee is not included in the rent.

*Example 3: HUD Releases New Income Limits

An LIHC property owner is a calendar year taxpayer. For 2006, the imputed income limit for two bedroom units is $31,080 and the maximum rent the owner can charge is $9,324.00 annually or $777.00 monthly.

11-8

Revised October 2009

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