On July 29, 2008 the Internal Revenue Service (IRS) published long-awaited final regulations that change the way rents are adjusted on Low-Income Housing Tax Credit (LIHTC) properties when residents pay for their own utilities. NMHC led the industry effort for such a change since 2004. The changes go into effect immediately.

Background
Tax credit rents include a utility allowance for resident-paid utilities; however, the methods the IRS has traditionally allowed owners to use to estimate resident utility costs tend to overestimate them. This, in turn, reduces the gross rent received by owners and threatens the financial viability of many LIHTC properties. The new regulations are a significant victory for affordable LIHTC owners, developers and investors.

In 2005, an NMHC/NAA-led coalition submitted a proposal to the IRS that would allow owners to use more accurate data to calculate resident-paid utilities.

IRS Regulations
The 2008 IRS regulations, which are largely based on a proposal submitted by an NMHC/NAA-led coalition, increase the sources of data owners can use to calculate resident-paid utilities. Under the new rules, owners can use:

Finally, the rules clarify how to handle estimates for properties in deregulated energy markets where multiple providers serve the community.

In addition to the procedures to set utility adjustments, NMHC secured a provision to allow properties to obtain a stabilized occupancy before rents are adjusted at newly developed properties. The provision sought by NMHC would require rents to remain unadjusted for a period of one year, or until the property has achieved 90 percent occupancy for 90 consecutive days, whichever comes first.