New IRS Utility Allowance Regulations Good For LIHTC Properties

By Anuradha Kher, Online News EditorWashington, D.C.–The Internal Revenue Service has published long-awaited regulations changing the way rents are adjusted on Low-Income Housing Tax Credit (LIHTC) properties where residents pay for their own utilities. This gives 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,” says Justin MacDonald, a Kerrville, Texas-based LIHTC developer and chairman of the National Association of Home Builders’ (NAHB) Housing Credit Group.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 urban sectors versus the 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, he says.“These new regulations should solve a critical problem that was threatening to make a large inventory of the nation’s affordable housing financially unstable,” says David Cardwell, National Multi Housing Council/National Apartment Association (NMHC/NAA) vice president of Capital Markets.The new regulations increase the sources of data that owners can use to calculate resident-paid utilities to make them more accurate.  The new rules also allow owners to use utility estimates provided by state LIHTC allocating agencies (typically state housing finance agencies) and estimates produced by a new HUD utility modeling program.