The Treasury Department and IRS today released for publication in the Federal Register final and temporary regulations (T.D. 9755) and, by cross-reference, proposed regulations (REG-123867-14) relating to the allowance for utility costs and implications for the low-income housing credit.
Generally, an allowance for the cost of utilities paid by a tenant—and not by or through the building owner—is included in the computation of the low-income unit’s gross rent. The maximum rent that can be charged by a building owner must be reduced by the appropriate utility allowance.
Today’s final regulations adopt regulations that were proposed in 2012 to provide that utility costs paid by a tenant based on actual consumption in a submetered rent-restricted unit are treated as paid directly by the tenant, and thus do not count against the maximum rent that the building owner can charge.
The temporary regulations extend the principles of these submetering rules to situations when a building owner sells energy, to tenants, that is produced from a renewable source and that is not delivered by a local utility company.
Also, the final regulations modify the fees a building owner may charge the tenant for administering the submetering arrangement. Generally, owners are permitted to charge tenants fees in accordance with a state or local law that specifically prescribes a dollar amount for the administrative fee. Such fees are not considered gross rent. Guidance will be published in the Internal Revenue Bulletin to provide for administrative fees in excess of $5 per month in the absence of the state or local law doing so, and to put an upper limit on the amount of administrative fees a building owner may charge, even if state or local law allows higher fees.
In addition, the final regulations make some modifications to the energy consumption method for estimating the utility allowance. State housing agency approval is required only for qualified professionals that are not properly licensed engineers. Instead of following the requirement that an energy consumption model use the building’s consumption data for a particular 12-month period, the final regulations revise the specific factors used in determining estimates to include available historical data.
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