109.04.6-XVIII. Combining HOME Funds with Low Income Housing Tax Credits.
AR ADC 109.04.6-XVIIIArkansas Administrative Code
Ark. Admin. Code 109.04.6-XVIII
109.04.6-XVIII. Combining HOME Funds with Low Income Housing Tax Credits.
Rental projects that combine HOME funds with Low Income Housing Tax Credits (LIHTC) must be structured to ensure compliance with the requirements of both programs.
Tax credit projects must meet one of two minimum set-asides: 20/50 or 40/60. 20/50 means that at least 20 percent of the units must be rented to tenants with incomes at or below 50 percent of the area median income. The 40/60 set-aside means that at least 40 percent of the units must be rented to tenants earning at or below 60 percent of area median income. When combining HOME and tax credits, occupancy requirements depend on the type of credit taken and the type of HOME funding provided:
In order to take the 9 percent credit in conjunction with below-market HOME loans, joint HOME/tax credit projects must meet a higher occupancy standard than either the tax credit program or the HOME program. Together, they require 40 percent of the units to be occupied by tenants with incomes at or below 50 percent of area median income. Such projects are not eligible for the 130 percent increase in basis for projects in “qualified census tracts” or “difficult development areas”. To receive the 130 percent increase, the project must either take the 4 percent credit of use the HOME funds at or above the applicable Federal rate.
In all other cases (when HOME funds are provided in some for other than a below-market interest rate loan) projects must ensure that they meet both sets of program rules. For example, a project receiving a market-rate loan can comply with both sets of rules by establishing a 20 percent set-aside for households with incomes at or below 50 percent of the area median income (as long as all remaining HOME-assisted units are leased to tenants with incomes at or below 80 percent of the area median income).
RULES FOR COMBINING HOME FUNDS AND LIHTC
Tax Credit Rule | Combining Tax Credits with HOME | |
|---|---|---|
Occupancy Requirements | At least 20 percent of units must be reserved for households with incomes at or below 50 percent of area medina income OR 40 percent of the units must be reserved for households with incomes at or below 60 percent of area medina income. | If HOME funds are provided at below the market interest rate, at least 40 percent of the units must be reserved for households with incomes at or below 50 percent of area median income to qualify for the 9 percent credit. Otherwise, at least 20 percent of units must serve households at or below 50 percent of area median income to meet HOME requirements. |
Rent Requirements | Rents for qualified units must not exceed the rent limit set for the LIHTC program. HUD limits are set by bedroom size and are based on the qualifying incomes of an imputed household size. | For units to qualify as both tax credit and HOME-assisted units, rents cannot exceed either program limit. Low HOME rent units are subject to Low HOME rents and tax credit limits, whichever is lower. High HOME rent units are subject to High HOME rents and tax credit limits, whichever is lower. |
Establishing Tenant Eligibility | Documentation: All sources of income must be verified. Acceptable documentation of income must be provided. | Documentation: Initial tenant eligibility documentation for both programs is the same. Use the Section 8 definition of income. |
Definition: The tax credit program defines income using the Section 8 definition of annual gross income. | Definition: Use the Section 8 definition of income. | |
Asset Income: Assets of $5000 or less: tenants certify asset amount and income. Use actual income. | Asset Income: Follow more stringent HOME rules and verify all asset income. | |
Assets above $5000: verify amount and income. Use larger of actual income from assets or imputed asset income | ||
Reexamination of Income | Re-examinations are performed annually following the same procedures as at initial certification. ADFA is not currently considering any waivers from reexaminations. | The project must follow the more stringent tax credit requirements. ADFA is not currently considering any waivers of re-examinations. |
Over-Income Tenants | Rent for over-income tenants remains restricted. | HOME rules defer to tax credit rulesrent remains restricted. In no case can the rent exceed limits set by the tax credit program. |
Monitoring | Over-income is defined as 140 percent of the project rent limit. | ADFA will monitor HOME/tax credit projects in accordance with guidelines of each program. In case of a conflict, the more stringent rule will apply. |
Projects are monitored by the second year the last building of the development is placed in service and once every three years throughout the affordability period. A random selection of 20 percent of tenant files and units will be reviewed. | ADFA will monitor rental projects based on total number of units and annually for other HOME-assisted projects. | |
Affordability Period: IRS mandates a 15-year affordability period. Developers will extend the affordability period an additional 15 years, for a total of 30 years, by terms of a land use restriction agreement. | The HOME affordability periods are as follows: up to $15,000=5 years $15,000-$40,000=10 years $40,000 or more=15 years. For a refinance of Rehabilitation project=15 years; New construction=20 years. | |
Owners must submit a statement of compliance annually along with occupancy status reports. | Recipients must submit Project Compliance Reports annually for HOME units and LIHTC Owners Certification and occupancy status reports. |
In reference to the annual Project Compliance Reports, recipients are hereby notified that ADFA has implemented a web-based compliance monitoring system. Managers will be required to utilize the system to enter unit and tenant data. A separate Users Guide will be provided along with training.
When tenants receive additional subsidies through rental assistance programs such as Section 8, additional requirements apply.
In 1989 the IRS ruled that if the tenant portion of rent increases above the tax credit maximum allowable rent, thereby reducing the Section 8 subsidy, the higher rent may be charged. Owners must ensure that the total tenant payment does not exceed the maximum tax credit rent at time of move-in.
HOME allows the rent to be raised to the rental assistance program limit only if the tenant pays no more than 30 percent of adjusted income, the subsidy is project-based (not tenant-based) and the tenant's income is less than 50 percent of the area median income.
In a joint HOME/tax credit unit, generally, the most restrictive requirements apply but owner must be aware he may have to satisfy the requirements of both programs.
Samples of checklists, forms and exhibits follow.
Current with amendments received through May 15, 2024. Some sections may be more current, see credit for details.
Ark. Admin. Code 109.04.6-XVIII, AR ADC 109.04.6-XVIII
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