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The Internal Revenue Service has prepared new guidance that will help developers utilize the “average-income” option in the low-income housing tax credit (LIHTC) program.

The regulations, which will take effect upon publication in the Federal Register, addresses several issues that have thwarted the use of the set-aside option.

First, it eliminates the “cliff effect,” in which a small number of units out of compliance can threaten recapture of the credits for not meeting the minimum set-aside, reports the Affordable Housing Tax Credit Coalition (AHTCC). Now, the revised rules “limit the impact of one unit’s noncompliance on the ability of a project to satisfy the average-income test.”

“The guidance released today will have an immediate impact, allowing stalled affordable housing developments to move forward at a time when rents are skyrocketing,” says AHTCC CEO Emily Cadik. “We thank the Biden administration for taking these important steps, and for committing to work with Congress to act to further increase affordable housing supply.”

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