Home Housing & Development Home Builders Applaud New IRS Regulations on Utility Allowances for LIHTC Properties

Home Builders Applaud New IRS Regulations on Utility Allowances for LIHTC Properties

Montgomery, AL – July 30, 2008 – (RealEstateRama) — Calling it a victory for affordable housing, the National Association of Home Builders (NAHB) applauded new regulations issued by the Internal Revenue Service (IRS) that give Low Income Housing Tax Credit (LIHTC) property owners more flexibility in the way they calculate utility allowances for their low-income residents.

“Considering the exponential increases in energy costs, the new utility allowance regulation will allow builders to more accurately calculate the energy usage for their buildings, therefore reducing long-term operating costs,” said Justin MacDonald, a LIHTC developer in Kerrville, Texas, and chairman of NAHB’s Housing Credit Group, which had been leading the charge for the new regulations for the past several years.

With LIHTC properties already under pressure from the current woes in the housing and capital markets, the future of new and existing LIHTC-financed affordable housing was being seriously threatened by the previous regulation. LIHTC owners must make “allowances” for utilities by deducting them from gross rents. The previous method of calculating the allowances often was based on averages, which included older, less efficient properties or did not take into account the cost differences between more urban sectors versus the more rural ones. According to MacDonald, owners were often forced to allow a greater amount for the utility allowance than the actual expense.

As a result, there were properties whose owners and managers could not keep the correct portion of the rent charged, and were nearly at the point of having to run at a loss – a situation that eventually would have closed communities, forcing residents to scramble for alternative housing.

NAHB led a coalition effort to modify the IRS regulations to allow owners to use alternative methods to compute the utility allowances for their properties so that they more closely reflected actual expenses.

The Low Income Housing Tax Credit program is the primary vehicle for financing construction of affordable rental apartments and is credited with creating more than one million affordable housing units since it was enacted by Congress in 1986.