IRS Issues Final and Temporary Regulations on LIHTC Average-Income Set-Aside Test, Extends Notice 2022-05 Relief

Friday, October 7, 2022 - 8:45am

The Internal Revenue Service (IRS) today released final and temporary regulations on the average-income set-aside for low-income housing tax credit (LIHTC) properties. The new guidance removes the “cliff test” and allows unit redesignations based on a wide range of justifications.

The LIHTC average-income minimum set-aside was added under the Consolidated Appropriations Act of 2018 and the IRS issued a proposal on Oct. 30, 2020. Subsequently, stakeholders asked for changes to the proposal, including through a public hearing at the U.S. Department of the Treasury and numerous comment letters. The final rule will go into effect upon publication in the Federal Register, scheduled for Oct. 12.

Separately, the IRS issued IRS Notice 2022-52 which extends relief announced in IRS Notice 2022-05, specifically placed-in service deadlines for 2019-2021 allocations, postponement of the reasonable restoration period by 24 months instead of 18 months, extension of the correction period by up to 12 months and the continuation of waivers for physical inspections.

Both developments were included as part of a White House update on its Housing Supply Action Plan, which announces other policy changes to advance affordable housing.

Novogradac will provide further insight in the Oct. 20 Examining the Updated Average Income Test Regulations Webinar, a News from Novogradac blog post and the Oct. 11 Tax Credit Tuesday podcast.