Low Income Housing Credit ("New" Set Aside Option)
The Service has issued Revenue Ruling 2020-04 which indicates how to compute the income limits applicable to the low-income housing credit under IRC § 42.
The Consolidated Appropriations Act of 2018 added a new minimum set-aside test, the average income test (§ 42(g)(1)(C)), to the existing minimum set-aside tests available to owners of a low-income housing project – the 20/50 and 40/60 tests. Revenue Ruling 2020-04 implements the new rule.
At first glance, the new rule (the 20,30,40,50,60,70,80 Test?) appears to be more flexible than the existing set asides. However, like the 20/50 and 40/60 tests; once made – the election is irrevocable (IRC § 42(g)). It may be a difficult test to sustain in a dynamic rental environment – particularly in areas with declining economies.
The ruling is available on line – and eventually will appear in the IRB.