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Guide for Completing Form 8823 - page 142 / 197





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percentage of low-income units in a building (excluding the over-income units) equals the percentage of low-income units on which the credit is based, failure to maintain the over-income units as low-income units has no immediate significance; *i.e., the over-income units can be converted to market-rate units.*

  • 6.

    If any comparable or smaller unit that is available or that subsequently becomes available is rented to a nonqualified resident, all over-income units within the same building for which the available unit is comparable or larger lose their status as low- income units. See Treas. Reg. 1.42-15(f).

  • 7.

    The Available Unit Rule should not be confused with the Vacant Unit Rule, which applies without regard to the income of existing tenants.

In Compliance

A building is in compliance when the current applicable fraction is at the applicable fraction on which credit is based. Units containing households whose incomes originally qualified, but currently exceed 140 percent (170 percent for deep rent skewed projects) of the current income limit are included in the applicable fraction as long as the rents for the units continue to be restricted.

Example 1: Change in Over-Income Units

A project consists of one building with 10 units of equal size. Units 1 through 8 are low-income units. Unit 9 is a market rate unit. Unit 10 is a vacant market rate unit. The applicable fraction for the credit is 80%. The current percentage of income-qualified tenants is 80% and the building is in compliance.

On July 1, 2000, the income of the tenants in units 6, 7 and 8 were determined to be over 140 percent of the income limit. The rents for these 3 units remained restricted. The current applicable fraction remains at 80% and the building continues to be in compliance.

To determine whether a noncompliance event could potentially occur, the owner calculated the applicable fraction without the over-income *units* as part of the numerator. This fraction is 50 percent (5/10). To remain in compliance, Unit 10 must be rented *as a low-income unit* to replace one of the over-income *units*. In addition, if the tenant in Unit 9 (the other market rate unit) vacates, that unit must also be rented *as a low-income unit*.

*An income*-qualified household moved into Unit 10, *at a restricted rent,* on August 1, 2000. At the time of the move in, the current applicable fraction (excluding all of the over-income units) has increased to 60 percent.

On August 31, 2000, Unit 9 *a market-rate unit, was* vacated and *an income-qualified* household moved into Unit 9 *at a rent restricted rate* on January 1, 2001. The applicable fraction (excluding all of the over-income units) increased to 70 percent.

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Revised October 2009

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