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Guide for Completing Form 8823 - page 159 / 197

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Chapter 18 Category 11m Owner Did Not Properly Calculate Utility Allowance

Definition

This category is used to report noncompliance with the utility allowance requirements outlined in Treas. Reg. §1.42-10. An allowance for the cost of any utilities, other than telephone, cable *television, or Internet,* paid directly by the tenant(s) *and not by or through the owner of the building* is included in the computation of gross rent under IRC §42(g)(2)(B). A separate estimate is computed for each utility and different methods can be used to compute the individual utility allowances. The utility allowance is computed on a building-by- building basis. The maximum rent that may be paid by the tenant must be reduced by utility allowance(s) obtained in the following manner.

  • 1.

    If a building receives assistance from *the Rural Housing Service (RHS-assisted building)* then the utility allowance is *determined using the method prescribed by the Rural Housing Service (RHS) for the building, regardless of whether the building or its tenants also receive other state or federal assistance.

  • 2.

    If any tenant in a building receives RHS rental assistance payments (RHS tenant assistance), the applicable utility allowance for all rent-restricted units is the applicable RHS utility allowance, including any units occupied by tenants receiving rental assistance payments from the Department of Housing and Urban Development (HUD).

  • 3.

    If neither a building nor any tenant in the building receives RHS housing assistance, and the building’s rents and utility allowances are reviewed by HUD on an annual basis (HUD-regulated building), then the applicable HUD utility allowance is the utility allowance for all rent-restricted units in the building.*

  • 4.

    If a building is neither *an RHS-assisted* nor HUD-regulated, and no tenant receives *RHS tenant assistance, the applicable utility allowance for any rent- restricted unit occupied by tenants receiving HUD rental assistance payments (HUD tenant assistance) is the applicable Public Housing Authority (PHA) utility allowance established for the Section 8 Existing Housing Program.

5. Taxable years beginning before July 29, 2008: If neither the building nor tenants are subject to the rules described in 1-4 above, then the local public housing authority (PHA) allowance is used. However, if an estimate is obtained for any unit from a utility company, that estimate is used as the utility allowance for all similar units in the building.

Taxable years beginning after July 28, 2008: If neither the building nor tenants are subject to the rules described in 1-4 above, then the local public housing authority (PHA) allowance is used. However, if an estimate is obtained for any unit in the building, that estimate is used as the utility allowance for all similar

18-1

Revised October 2009

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