Article | Basics 5: "Setting Limits" - Selecting Correct Income Limits for Tax Credit PropertiesMar 02, 2022
MTSP Program Implementation Dates
Now on to Some Specific Common Questions…
Question: “The income limits went down for the area. What happens?”
Answer: The tax credit law changed with 2008’s HERA. One new provision was that, starting in 2009, the limits that a specific tax credit property uses do not have to go down from one year to the next, starting when the first building in a project places in service. This principle is referred to as “hold harmless.” For example, assume that the first building in a project was placed in service in 2016, and limits went down in 2017 and down again in 2018. The 2016 income (and rent) limits should be used for all those years. They will continue to be used until the published limits exceed the 2016 limits. At that time, the owner will use the new limits and will “hold harmless” to the new limits.
The published income limits for the project’s area has gone down from a prior year.
The project had at least one building that was in service during the applicable prior year.
Question: “Are “HERA Special” or rural limits an option for my property?”
Answer: HERA created the “hold harmless” provision discussed in the last question. It also created a couple of additional special options for some properties that face special challenges. These are “HERA Special” for some older properties and the rural national non-metropolitan average limits for rural projects with exceptionally low published income limits. Selecting these may seem a bit tricky, but really the limit to select is based on a few simple factors. The following will help determine if the special limits apply.
“Quick test” “HERA Special” limits may be used if the below are both true:
HUD lists this option for the property’s area.
At least one building in the project was placed in service in 2008 or earlier.
“Quick test” “National non-metro” limits may be used if the below are both true:
The project is not funded with tax-exempt bonds.
The project is in an area determined by USDA (Rural Development) to be “rural” and the published MTSP limits for the area are lower than the national non-metro limits.
Income limits and the Average Income Test
Bonus Question: “Do MTSP limits apply to the HOME program?”
Answer: No, HOME Income and rent limits are 1) not the same as the MTSP limits, 2) are published later, and 3) are subject to HOME-specific regulations. “Hold harmless” provisions do not apply to HOME units for HOME income limit purposes. This is true for HOME purposes, even if the property is also tax credit.
There is a very good chance that the topic of this post is covered in an online on-demand course at Costello University.
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