Aspire to Average! - Part 1

Which Projects Can Use Averaging and When?

On March 23, 2018, an omnibus spending bill, the Consolidated Appropriations Act of 2018, contained provisions that made significant changes to the Housing Tax Credit program. One of these provisions is a new minimum set-aside, which the law refers to as the Average Income Test. This series of articles discusses common questions about this option, what we know about it, and questions that are still unanswered.

Series Outline

Part 1. Which Projects Can Use Averaging and When?

Part 2. How Does Income Averaging Work?

Part 3. Benefits & Challenges Income Averaging Presents

Part 4. The Available Unit Rule & Conclusion

This first article will deal with questions about which projects can use the new provision and when.


My boss is excited to use income limit averaging for several older properties that she owns. They could benefit from 70 and 80% units and they have a lot of lower income limit units already. She wants to know when can I start implementing the higher set-aside units?

Answer: Unfortunately, you will not. The new rule created a new, third, minimum set-aside option. This is in addition to the 20-50 and 40-60 options that existed until now for most properties. As the minimum set-aside election is irrevocable once made, older properties cannot change their minimum set-asides to incorporate income limit averaging. According to the new law, only new properties that elect the minimum set-aside after the enactment of the law will be able to use the new average minimum set-aside.



We have a new project for which we have not filed the first-year tax return or submitted the 8609s to the IRS. How can we elect the new MSA? Is it the 40-60 election?

Answer: No, although the new set-aside is a variation of the 40-60 set-aside, the original 40-60 election still exists as it always has. To elect the new 40-60 (average) election, the 8609 needed to be revised by the IRS to include the new 3rd option. When this article was first written, the legal right to elect the new set-aside existed, but no mechanism to make the election. We hoped that the IRS would respond to this matter quickly. Update: The revised form was released on May 31, 2018. See the IRS 8609 page HERE and our Breaking News! Blog announcement HERE.


If I leased up as a traditional 40-60 project, but have not yet elected my minimum set-aside, does this mean I cannot elect the 40-60 (average) option?

Answer: You probably still have the new option. When planning for your rent-up at the 40-60 set-aside, you planned for all of your affordable units to be at or below 60%. Thus, the average is 60% or less (if you rented to lower set-asides as well as the 60%), and the project will still meet the average test. Making the new election will allow you to look at the project map, determine which units are at lower set-asides and re-designate some units at 70% or 80%. Even if an owner decides to keep the units at or below 60%, making the election may provide more flexibility in the future. There are other considerations, however, before the election can be made. We will discuss several in the third article.

Next article: How does the new average test work?

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