Basing Rent on Number of Bedrooms

Q My company is about to manage a new tax credit site. We heard that tax credit managers can choose to base the rent for a low-income unit on either the size of the household that occupies the unit or the number of bedrooms in the unit. Is this true?

A No. The tax credit law requires you to base the rent you charge for all low-income units on the number of bedrooms the units have, says tax credit consultant A. J. Johnson. Only sites that were allocated credits before 1990 were required to base the rent on household size or the number of bedrooms in the unit, depending on whether the owner had made its “cross-over election,” he notes.

Because rent is based on 30 percent of the income limits for your area and these limits are organized by household sizes, you must convert the number of bedrooms in a unit to an “imputed” (that is, assumed) household size, says Johnson. To do this, you must assume an occupancy of 1.5 people per bedroom, he explains. For example, you must use the three-person income limit for a two-bedroom unit. But you must treat a studio, which has no bedrooms, as a one-person household, he adds.

To illustrate, suppose the one-person income limit for your site is $26,000 and that the two-person income limit is $28,500. To calculate maximum rent for a one-bedroom unit at your site, you would need to calculate the income limit for 1.5 persons. To do this, you add the one-person and two-person income limits and divide this sum by two ($26,000 + $28,500 = $54,500; $54,500 ÷ 2 = $27,250).

Then you calculate 30 percent of the income limit for 1.5 persons to calculate the yearly gross rent ($27,250 x 30% = $8,175). This figure is then divided by 12 months to obtain the monthly rent ($8,175 ÷ 12 = $681.25). Therefore, in this example, the maximum rent for a one-bedroom unit is $681.25 per month.

It's important to remember that when dividing the maximum annual rent by 12 months to determine the maximum monthly rent, you never round up to the nearest whole dollar. Rounding up to the nearest whole dollar will result in the owner charging more than the maximum annual rent allowed by the tax credit program.

Insider Source

A.J. Johnson, HCCP: President, A.J. Johnson Consulting Services, Inc., 3521 Frances Berkeley, Williamsburg, VA 23188; www.ajjcs.net.