In LIHTC compliance, the difference between a harmless practice and a serious violation can come down to a single regulatory detail.

Scenario

A compliance reviewer examines tenant files for a building at an LIHTC property for the year 2025. The building was placed in service late in 2023. However, the files show that the property is using 2022 income limits when determining tenant eligibility. In addition, the rents charged are based on the 2021 limits, resulting in rents higher than those being charged at another LIHTC property nearby using current HUD limits.

The reviewer concludes that the property is using outdated income limits and charging excessive rents.

What color is the compliance stoplight?

🟢 Green Light – Tax credits are safe
🟡 Yellow Light – Proceed with Caution
🔴 Red Light – Tax credit loss imminent

Food for thought: Many compliance professionals immediately assume this situation is a Red Light because both the eligibility limits and the rents appear higher than the current HUD limits.

Stoplight Reveal

🟡 Yellow Light – Proceed with Caution

The fact that a property is using older income limits or rent limits does not automatically indicate noncompliance. Section 42 contains provisions that may permit the continued use of earlier limits, so additional analysis is required before determining whether the property is eligible and charging the correct rents.

More Details

LIHTC income limits and rent limits are not always based on the most recent HUD limits and may be based on different years' income limits.

Income eligibility limits may remain based on earlier limits under the HERA hold-harmless provisions when HUD subsequently publishes lower income limits. Likewise, maximum rents may remain tied to income limits in effect on an earlier gross rent floor date rather than later, lower HUD limits.

Because these provisions operate independently, a property may legitimately use one set of limits for determining household eligibility and a different set of limits for calculating maximum rents.

As a result, two LIHTC properties in the same market may properly use different income limits and rent limits depending on factors such as placed-in-service timing, project history, and applicable rent floor protections.

Compliance Insight

Before concluding that rents are too high or families were incorrectly qualified, compliance professionals must determine which income limits and rent limits actually apply to the project under Section 42.

Closing

Did the result surprise you? Watch for next week's Compliance Stoplight Test.

References

• IRC §42(g)(2)
• IRC §42(g)(8)
• IRC §42(g)(9)
• Housing and Economic Recovery Act of 2008 (HERA), §3009 Top of Form