IRS to Publish Final Utility Allowance Regulations for LIHTC Properties

Ballard Spahr LLP
Contact

On Monday, the IRS will publish final utility allowance regulations for low-income housing tax credit (LIHTC) properties under Section 42 of the Internal Revenue Code (Code). Under section 42(g)(1) and (2) of the Code, a residential rental unit may qualify as a low income unit eligible for LIHTCs only if it is “rent-restricted.” For purposes of determining if a unit is rent-restricted, gross rent includes any “utility allowance” if the cost of any utility for a residential rental unit is paid directly by the tenant, reducing the amount of rent that the building owner may collect. Under current regulations, a building owner of a submetered building may be required to reduce its maximum gross rent by the utility allowance because under certain circumstances a tenant is treated as having made the utility payments directly to the utility company even though the payments pass through the building owner.

Temporary regulations extended this principle to situations in which a building owner sells to tenants energy that was produced from a renewable energy source. The final regulations adopt the temporary regulations and clarify that the rate the building owner charges for such energy cannot exceed the highest rate at which the tenants might have obtained energy from a local utility company. Further, the owner may rely on the rates published by local utility companies to make this determination. In addition, the final regulations provide that although whether energy is produced from a renewable energy source is determined by cross reference to the definitions of a “facility” and “energy property” in sections 45 and 48 of the Code, respectively, the building owner does not need to otherwise qualify or receive energy-related credits.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ballard Spahr LLP | Attorney Advertising

Written by:

Ballard Spahr LLP
Contact
more
less

Ballard Spahr LLP on:

Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide
- hide