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IRS Provides New Ways to Compute Utility Allowances
New Internal Revenue Service regulations giving Low Income Housing Tax Credit (LIHTC) property owners more flexibility in how they calculate utility payment allowances for their low-income residents represent an important victory for affordable housing, NAHB said on July 29.
“Considering the exponential increases in energy costs, the new utility allowance regulation will enable builders to more accurately calculate the energy usage for their buildings and reduce long-term operating costs,” said Justin MacDonald, an LIHTC developer in Kerrville, Texas, and chairman of NAHB’s Housing Credit Group, which had been leading efforts to change the new regulations for the past several years.
With LIHTC properties already under pressure from the current woes in the housing and capital markets, the feasibility of existing and new LIHTC-financed affordable housing was being seriously threatened by the previous regulation, according to MacDonald.
LIHTC owners are required to make allowances for utilities by deducting them from gross rents. The previous method of calculating allowances for the utilities paid by residents often was based on averages that included older, less efficient properties or did not take into account the cost differences between more urban and rural areas. This could result in larger allowances than residents were actually paying for their utilities.
As a result, the owners and managers of some properties were unable to keep the correct portion of the rent charged, and were nearly at the point of having to run at a loss — a situation that eventually would have closed communities, forcing residents to scramble for alternative housing.
NAHB led a coalition effort to modify the IRS regulations to allow owners to use alternative methods to compute the utility allowances for their properties to more closely reflect actual expenses.
The Low Income Housing Tax Credit program is the primary vehicle for financing construction of affordable rental apartments and is credited with creating more than 1 million affordable housing units since it was enacted by Congress in 1986.
For the complete IRS announcement on the updated regulation, click here.
For more information, e-mail Ann Marie Moriarty at NAHB, or call her at 800-368-5242 x8350.
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