Affordable housing finance
Average income test (AIT)
The third minimum set-aside (IRC § 42(g)(1)(C)): 40%+ of units designated in 10-point bands from 20% to 80% AMI, averaging no more than 60%.
Definition
Added in 2018, the average-income test lets one project mix unit designations in 10-point bands from 20% to 80% of AMI, so long as at least 40% of units are restricted and the designations average no more than 60% — the election lives at IRC § 42(g)(1)(C), and each unit's band sets its income limit and rent ceiling. Treasury's 2022 final rules at 26 C.F.R. § 1.42-19 ended the early cliff fear: a noncompliant unit no longer breaks the election if a qualified group of units still passes, and designations can change within prescribed limits. CTCAC layers its own election and reporting procedures on top.
Why it matters in an underwrite
AIT is the mixed-income workhorse: 70–80% AMI rents cross-subsidize 30–40% units a flat 40-60 project could not carry. The catch is operational — band-by-band income limits, designation records and next-available-unit mechanics across up to seven levels — and economic: an 80% ceiling only adds revenue where market rents exceed it. Underwrite each band at the lower of market or ceiling, and leave cushion under the 60-point average.
Sources & related guides
See also
See the term in the law itself
Read the controlling text in the Code Library, or ask the AI how it applies to your project.
Last reviewed 2026-07-29. General information, not legal advice.