The U.S. Department of Housing and Urban Development (HUD) released income limits April 14 for fiscal year (FY) 2017, continuing its policy of releasing a set of Section 8 income limits at the same time as a set of multifamily tax subsidy project (MTSP) income limits. MTSP income limits are used by low-income housing tax credit (LIHTC) properties and tax-exempt bond properties.

About the 2017 Income Limits

FY 2017 income limits were based on the American Community Survey (ACS) data collected for 2014 where reliable one-year estimates were available. In counties without reliable one-year ACS estimates, the five-year average ACS median income estimate for 2010 to 2014 was used. The ACS data was then trended through April 2017, using an inflation factor based on the Congressional Budget Office (CBO) forecast of the national consumer price index (CPI). 

The MTSP income limits increased from FY 2016 to FY 2017 in 84 percent of counties, decreased in 15.3 percent of counties and had no change in 0.7 percent of counties without taking into account Housing and Economic Recovery Act (HERA) Special income limit and hold-harmless provisions. The income limits remained unchanged in 48.3 percent of counties and increased in 51.7 percent of counties for MTSPs after taking into account the HERA Special income limit and hold-harmless provisions, using FY 2009 as the base year for hold harmless. Please see www.taxcredithousing.com for a sortable chart of the income limit changes.

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. The national median family income for 2016 was $65,700. In FY 2017, the national median family income is $68,000. The change from FY 2016 to FY 2017 is positive 3.5 percent; therefore MTSP increases for 2016 were capped at 7 percent. The following is a table listing the number of counties and metropolitan areas with limits floored and limits capped: The areas subject to the ceiling and floor are shown on the map on Page 48.

National Non-Metro Median Income

LIHTC properties subject to volume cap (i.e., 9 percent properties) in rural areas as defined by the U.S. Department of Agriculture (USDA) are allowed to use the greater of the national non-metro median income (NNMI) or the income limit otherwise applicable to their development. The NNMI increased from $53,300 in 2016 to $55,200 in 2017. 

In addition, an area may lose its rural status (see December 2012 Novogradac Journal of Tax Credits for more information about the change in USDA’s rural definition). There is no clear guidance from the Internal Revenue Service (IRS) that a property is held harmless at the NNMI when the NNMI decreases from one year to the next when an area loses its rural status. Those relying on the NNMI to determine income limits should check with their state agency for their interpretation of how the hold harmless policy applies to rural developments. 

Inflation Adjustment

Beginning with the FY 2015 income limit calculations, HUD incorporated a CPI forecast from the CBO to adjust the trailing ACS data to the midpoint of the fiscal year. The CPI forecast replaced the old trend factor, which was based on the annualized change in national median family income over the past five years. HUD indicated that this change was due to the fact that previous income growth was not a reasonable indicator of upcoming income growth. For FY 2017, HUD continues to use the CPI forecast from CBO in the FY 2017 income limits, which will inflate the 2014 ACS data to the midpoint of FY 2017. The CBO projection of CPI, published in March, is used to adjust the 2014 ACS data.

For the FY 2016 income limits, the HUD CPI trending factor was 1.02637. The HUD CPI trending factor for 2017 is 1.03153. Due to the increase in the trending factor, areas that were relatively flat in their ACS growth will have a slight increase in both income limits and in the AMI from 2016 to 2017. 

Assume a county had the exact same ACS data for 2013 and 2014. The 2016 and 2017 income limits would be as follows:

This results in a 0.5 percent increase in a county that had no change in its ACS data. 

MTSPs and HERA

HUD’s hold-harmless policy was eliminated in FY 2010, so the income limits that it publishes do not take into account any hold-harmless policy. However, the IRS has a hold-harmless rule that is now applied on a property-by-property basis. All properties’ rent and income limits are held harmless, 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 before 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 2017 income limits shows that for MTSPs without HERA Special income limit and hold-harmless provisions (see map Change in HUD Published MTSP from 2016 to 2017):

• The income limits in 2,176 counties (83.7 percent) increased.
• The income limits in 404 counties (15.6 percent) decreased.
• The income limits in 19 counties (0.7 percent) did not change.

For MTSPs without HERA Special income limit and hold-harmless provisions, there was an average increase of 2.78 percent (not taking into account any weighting for the population of each county).

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

• The county is affected by HUD’s state median income floor.
• 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.

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 47): 

• The income limits in 1,263 counties (48.6 percent) did not change.
• The income limits in 1,336 counties (51.4 percent) increased.
• The income limits in zero counties decreased.

The average increase for this category is 1.70 percent (not taking into account any weighting for the population of each county).

The following maps illustrate changes from 2016 to 2017:

Impact of Hold Harmless

Because of the hold-harmless policy, the income limits of existing properties might not increase, even with an increase in the limits from one year to the next if the increased limits in the current year are less than any prior high-water mark used by an existing property. The hold-harmless period is a project-based rule and is determined when a property is placed in service. Even though year-over-year income limits increased by 2,176 areas (83.7 percent of all areas), only 1,336 areas (48.6 percent of all areas) rose above their hold harmless level.  The remaining 1,263 counties that did not rise above their hold harmless mark and will have no change in 2017. Below is a list of a few prominent areas that have not had increases above the hold harmless mark for an extended period of time. The year represents the last time the area obtained its highest income limits (held harmless amount)

• 2009 - Detroit-Warren-Livonia, MI HUD Metro FMR Area, Greensboro-High Point, NC HUD Metro FMR Area
• 2010 Atlanta-Sandy Springs-Roswell, GA HMFA; Phoenix-Mesa-Scottsdale, AZ MSA; Orlando-Kissimmee-Sanford, FL MSA
• 2011 - West Palm Beach-Boca Raton, FL HMFA
• 2012 - Sacramento-Roseville-Arden-Arcade, CA HMFA; Riverside-San Bernardino-Ontario, CA MSA; Providence-Fall River, RI-MA HMFA
• 2013 - Virginia Beach-Norfolk-Newport News, VA-NC HMFA