Understanding the 2014 Income Limits

Published by Thomas Stagg on Saturday, February 1, 2014
Journal thumb February 2014

The U.S. Department of Housing and Urban Development (HUD) released income limits for fiscal year (FY) 2014 on Dec. 18, 2013, continuing its recent practice of releasing in December a set of Section 8 income limits and a set of Multifamily Tax Subsidy Project (MTSP) income limits, which are used by low-income housing tax credit (LIHTC) properties and tax-exempt bond properties.

About the 2014 Income Limits
FY 2014 income limits were updated using American Community Survey (ACS) data collected from 2007 through 2011 (for large counties HUD uses 2011 ACS data as a starting point) and the 2012 consumer price index plus a trend factor before taking into account Housing and Economic Recovery Act (HERA) Special income limit and Hold Harmless provisions. The MTSP income limits decreased from FY 2013 to FY 2014 in 43 percent of counties, increased in 56 percent of counties and had no change in 1 percent of counties for MTSPs without taking into account the HERA Special income limit and hold harmless provisions. The MTSP income limits remained unchanged in 63 percent of counties and increased in 37 percent of counties after taking into account the HERA Special income limit and hold harmless provisions using FY 2009 as the base year for hold harmless.

HUD continues to apply a floor and ceiling to any increases or decreases to MTSP income limits, but not to HERA Special limits. Annual decreases for MTSP income limits are limited to no more than 5 percent and all annual increases are limited to the greater of 5 percent or twice the percentage change in the national median family income.

MTSPs and HERA
HUD’s hold harmless policy was eliminated in 2012, and therefore, the income limits that HUD publishes do not take into account any hold harmless policy. However, the Internal Revenue Service has a hold harmless rule that is now applied on a property-by-property basis. All properties’ rent and income limits are held harmless under the IRS rule, but only from the point at which they are placed in service (or for rents, in the year the rent floor election is effective). Although each property’s income and rent limits can never decrease, other properties in the same area can have lower income and rents limits than properties that were placed in service in prior years. Properties must start with the limits in effect the year the property is placed in service and then are held harmless from that point on.

As was the case last year, the MTSP charts list MTSP 50 percent and 60 percent income limits for each county, as well as HERA Special 50 percent and 60 percent income limits for each county that has a HERA Special income limit:

  • MTSP (50 percent and 60 percent) – an income limit based on the Section 8 very low-income (VLI) limit. The HUD-published MTSP 50 percent limit is equal to the Section 8 HUD VLI limit and the HUD published MTSP is equal to 120 percent of the Section 8 HUD VLI limit.
  • HERA Special (50 percent and 60 percent) – an income limit for properties that were in service prior to Jan. 1, 2009 and that is based on the calculation found in Internal Revenue Code Section 142(d), which allows the income limit to increase by the percentage increase in the actual area median income, before HUD makes its adjustments.

Novogradac & Company’s analysis of the 2014 income limits shows that for MTSPs without the HERA Special income limit and hold harmless provisions (see map on page 41) there was an average increase of 0.50 percent, and:

  • the income limits in 2,025 (43 percent) counties decreased.
  • the income limits in 66 (1 percent) counties did not change.
  • the income limits in 2,674 (56 percent) counties increased.

There are three main reasons why MTSP income limits may have increased or decreased by more than the corresponding change in AMI:

  • The county is affected by HUD’s 5 percent floor and ceiling on income limit decreases and increases from year to year.
  • The county is a high housing cost area and the FMR for the area increased or decreased.
  • The county AMI is less than the state non-metro AMI.

For MTSPs with the HERA Special income limit and hold harmless provisions for properties in service on or before Jan. 1, 2009 (see map on page 42) there was an average increase for this category is 0.87 percent and:

  • The income limits in 0 counties decreased.
  • The income limits in 2,996 (63 percent) counties did not change.
  • The income limits in 1,769 (37 percent) counties increased.

There are two main reasons why 2,996 counties had no change in income limit:

  1. An unadjusted MTSP had a decrease and the county is being held harmless (see above).
  2. The income limit was already being held harmless at an amount higher than the increased MTSP.

The accompanying maps illustrate changes from 2013 to 2014.