Households may request to transfer to a different unit at your tax credit property for a variety of legitimate reasons. A household might grow in size and need a larger unit with additional bedrooms. A household member with a disability may require a unit with features that better accommodate their needs. And in cases involving domestic violence, dating violence, stalking, or sexual assault, the Violence Against Women Act (VAWA) requires owners and agents to maintain an emergency transfer plan that allows for safe relocation when needed.

But while a transfer may be appropriate or even necessary for household stability or legal compliance, it can create serious tax credit risks if not handled properly. For example, if you approve a transfer between buildings that aren’t treated as part of the same project, the household may need to requalify under current income limits. If they don’t, the new unit may no longer be eligible for tax credits. And even within the same building, allowing a household to transfer into a unit of a different size or market designation can affect the building’s applicable fraction, potentially reducing the credits the owner may claim.

To avoid these pitfalls, site managers must understand how household transfers interact with key LIHTC compliance rules. We’ll go over what to look for before approving a move, including how buildings on your site may be grouped in IRS Form 8609, over-income limits, and unit status rules come into play. With a clear process in place, you can support residents while protecting the owner’s credits.

Check Form 8609 Election Before Approving Building-to-Building Transfers

A key first step in evaluating a potential transfer request is determining whether it will occur within the same building or between different buildings. For LIHTC purposes, buildings are either treated individually or as part of a multi-building project, depending on how the owner answered Line 8b on IRS Form 8609. If Line 8b is marked “Yes,” that building is part of a multiple building project, and a transfer between buildings may be permitted. If it’s marked “No,” the buildings are treated as separate projects, and the move would be treated as a move-out and new move-in.

According to the IRS 8823 Guide, “when a tenant moves to a different building within the same property and the second building was declared a separate project on IRS Form 8609, the household must be certified each time, and failure to do so results in noncompliance.” This means the household would have to qualify under current income limits and complete a full certification process. If the household doesn’t qualify, the unit won’t count toward the site’s applicable fraction and may not be eligible for credits.

Watch for Possible Issues for Within-the-Same-Building Transfers

Even if the transfer request is for a unit in the same building, there are still compliance factors to consider. When a household transfers within a mixed-income building, the IRS’s “swap rule” applies. This means the unit the household is leaving and the one they’re moving into exchange status.

As Treasury Regulation §1.42-15(d) explains, “if a low-income tenant moves to another unit in the same building, the newly occupied unit assumes the status of the vacated unit and vice versa.” The 8823 Guide provides an example: "An initially income-qualified household occupying a low-income unit in a mixed-use project was determined to have income in excess of 140 percent of the current AMGI at the time of the last annual income recertification.... Even though the units are not comparably sized, Unit A is now a low-income unit and Unit B is an over-income unit." 

In a 100 percent LIHTC building, this doesn’t cause issues because all units are low income. But in mixed-income buildings, swapping units of different sizes or rent restrictions can impact the building’s qualified basis. Households are not required to requalify under current income limits when transferring within the same building since the IRS does not treat these as new move-ins. 

However, site staff must pay close attention when a household is moving into a unit that was formerly a market-rate unit or that differs in size from the previous unit. A change like this can shift the building’s applicable fraction and reduce the tax credits the owner may claim. The 8823 Guide underscores this risk, stating, “credit loss and recapture could result” when a low-income household transfers into a smaller market-rate unit.

Don’t Approve Mixed-Income Building Transfers If Household Is Over-Income

Even when both buildings are part of the same project, the household still must be under the 140 percent limit at their most recent recertification to transfer. If they’re over-income, they may not be transferred to another low-income unit. The 8823 Guide makes this clear, “Households whose income is over 140 percent at recertification should not be transferred to another building unless a market-rate unit is available.” 

That’s because the Available Unit Rule kicks in. Treasury Regulation §1.42-15(c) explains that over-income households may remain in their current unit, but they can’t be moved to another low-income unit. If they are, the unit will be out of compliance and could result in credit loss.

An exception applies if you’re managing a 100 percent LIHTC site and annual recertification isn’t required. In these instances, you can approve transfers between buildings in the same project without needing to determine the household’s current income. The 8823 Guide says, “Households residing in 100 percent LIHC projects, where a household’s current income is not known, can also transfer between buildings within the project.”