Tax News

CCH (cch.taxgroup.com) reports:

  The IRS has adopted previously issued proposed regulations (REG-128274-03, published in the Federal Register on June 19, 2007) that amend the current low-income housing credit utility allowance regulations to provide new options for estimating utility allowance costs.

  In order to qualify as a rent-restricted unit the gross rent for a unit in a low-income housing project may not exceed 30 percent of the imputed income limitation applicable to the unit (Code Sec. 42(g)(2)). When utility costs are paid directly by the tenant, a utility allowance is added to the gross rent for that unit (Code Sec. 42(g)(2)((ii)).

Proposed Regulations

  The proposed regulations included two additional options for calculating utility allowances. The first new option allowed the building owner to obtain a utility estimate from the Agency with jurisdiction over the building. The second new method allowed the building owner to use the Housing and Urban Development (HUD) Utility Schedule Model. The final regulations retain these two proposed calculation methods and add a third option --the energy consumption model.

Calculation Method Added

  The utility allowance under the energy consumption model is calculated by a licensed engineer or Agency-approved professional using computer software that takes into account specific factors, including unit size, building orientation, design and materials, mechanical systems, appliances and characteristics of the building location.

  The final regulations do not prohibit using different calculation options for different types of utilities nor prohibit changing the method used to make a computation for a particular utility.

  A building owner is required to compute a new utility allowance once each calendar year. More frequent computation is permissible. In the case of a new building, a building owner is not required to review the utility allowances or implement new utility allowances, until the earlier of the date the building has achieved 90-percent occupancy for a period of 90 consecutive days or the end of the first-year of the 10-year credit period.

  In order to give tenants an opportunity to comment on a proposed allowance, a building owner must make the proposed utility allowances available to all tenants in the building at the beginning of the 90-day period before the utility allowances are used in determining the gross rents of rent-restricted units.

  The final regulations also exclude internet and cable television costs form the computation of the utility allowance. The current regulations only exclude telephone costs.

T.D. 9420, 2008FED ¶47,053

Other References:

 
Code Sec. 42

  CCH Reference - 2008FED ¶4384G

  CCH Reference - 2008FED ¶4384I

  Tax Research Consultant

  CCH Reference - TRC BUSEXP: 54,214.10