SECTION 2. BACKGROUND

.01 Section 103(a) provides that, ex­ cept as provided in § 103(b), gross income does not include interest on any State or local bond. Section 103(b)(1) provides that § 103(a) shall not apply to any pri­ vate activity bond that is not a “quali­ fied bond” within the meaning of § 141. Section 141(e) provides, in part, that the term “qualified bond” means any private activity bond if such bond (1) is a quali­ fied mortgage bond under § 143, (2) meets the volume cap requirements under § 146, and (3) meets the applicable requirements under § 147.

.02 Section 143(a)(1) provides that the term “qualified mortgage bond” means a bond that is issued as part of a qualified mortgage issue. Section 143(a)(2)(A) pro­ vides that the term “qualified mortgage is­ sue” means an issue of one or more bonds by a State or political subdivision thereof, but only if: (i) all proceeds of the issue (exclusive of issuance costs and a reason­ ably required reserve) are to be used to fi­ nance owner-occupied residences; (ii) the issue meets the requirements of subsec­ tions (c), (d), (e), (f), (g), (h), (i), and (m) (7) of § 143; (iii) the issue does not meet the private business tests of paragraphs (1) and (2) of § 141(b); and (iv) with respect to amounts received more than 10 years after the date of issuance, repayments of $250,000 or more of principal on mort­

gage financing provided by the issue are used by the close of the first semiannual period beginning after the date the prepay­ ment (or complete repayment) is received to redeem bonds that are part of the issue.

Average Area Purchase Price

.03 Section 143(e)(1) provides that an issue of bonds meets the purchase price requirements of § 143(e) if the acquisi­ tion cost of each residence financed by the issue does not exceed 90 percent of the average area purchase price applicable to such residence. Section 143(e)(5) pro­ vides that, in the case of a targeted area residence (as defined in § 143(j)), § 143(e) (1) shall be applied by substituting 110 percent for 90 percent.

.04 Section 143(e)(2) provides that the term “average area purchase price” means, with respect to any residence, the average purchase price of single-family residences (in the statistical area in which the residence is located) that were pur­ chased during the most recent 12-month period for which sufficient statistical in­ formation is available. Under §§ 143(e)(3) and (4), respectively, separate determina­ tions of average area purchase price are to be made for new and existing residences, and for two-, three-, and four-family res­ idences.

.05 Section 143(e)(2) also provides that the determination of the average area pur­ chase price shall be made as of the date on which the commitment to provide the financing is made or, if earlier, the date of the purchase of the residence.

.06 Section 143(k)(2)(A) provides that the term “statistical area” means (i) a met­ ropolitan statistical area (MSA), and (ii) any county (or the portion thereof) that is not within an MSA. Section 143(k)(2)(C) further provides that if sufficient recent statistical information with respect to a county (or portion thereof) is unavailable, the Secretary may substitute another area for which there is sufficient recent statis­ tical information for such county (or por­ tion thereof). In the case of any portion of a State which is not within a county, § 143(k)(2)(D) provides that the Secretary may designate an area that is the equiva­ lent of a county. Section 6a.103A-1(b)(4) (i) of the Income Tax Regulations (issued under § 103A of the Internal Revenue

Bulletin No. 2021–15 991 April 12, 2021

§§ 143(f)(1) and 25(c)(2)(A)(iii)(IV), the income requirement is met only if all own­ er-financing under a qualified mortgage bond and all mortgage credit certificates issued under a qualified mortgage credit certificate program are provided to mort­ gagors whose family income is 115 percent or less of the applicable median family in­ come. Section 143(f)(5), however, general­ ly provides for an upward adjustment to the percentage limitation in high housing cost areas. High housing cost areas are defined in § 143(f)(5)(C) as any statistical area for which the housing cost/income ratio is greater than 1.2.

.10 Under § 143(f)(5)(D), the hous­ ing cost/income ratio with respect to any statistical area is determined by dividing (a) the applicable housing price ratio for such area by (b) the ratio that the area me­ dian gross income for such area bears to the median gross income for the United States. The applicable housing price ratio is the new housing price ratio (new hous­ ing average area purchase price divided by the new housing average purchase price for the United States) or the existing housing price ratio (existing housing av­ erage area purchase price divided by the existing housing average purchase price for the United States), whichever results in the housing cost/income ratio being closer to 1.

Average Area and Nationwide Purchase Price Limitations

.11 Average area purchase price safe harbors for each state, the District of Co­ lumbia, Puerto Rico, the Northern Mari­ ana Islands, American Samoa, the Virgin Islands, and Guam were last published in Rev. Proc. 2020-18, I.R.B. 2020-15, 592.

.12 The nationwide average purchase price limitation was last published in sec­ tion 4.02 of Rev. Proc. 2020-18. Guidance with respect to the United States and area median gross income figures that are used in computing the housing cost/income ra­ tio described in § 143(f)(5) was published in Rev. Proc. 2021-19, I.R.B. 2021-15 (re­ leased on March 25, 2021).

.13 This revenue procedure uses Fed­ eral Housing Administration (FHA) loan limits for a given statistical area to calcu­ late the average area purchase price safe harbor for that area. FHA sets limits on the

dollar value of loans it will insure based on median home prices and conforming loan limits established by the Federal Home Loan Mortgage Corporation. In particular, FHA sets an area’s loan limit at 95 per­ cent of the median home sales price for the area, subject to certain floors and caps measured against conforming loan limits.

.14 To calculate the average area pur­ chase price safe harbors in this revenue procedure, the FHA loan limits are ad­ justed to take into account the differenc­ es between average and median purchase prices. Because FHA loan limits do not differentiate between new and existing residences, this revenue procedure con­ tains a single average area purchase price safe harbor for both new and existing res­ idences in a statistical area. The Treasury Department and the Internal Revenue Ser­ vice (IRS) have determined that FHA loan limits provide a reasonable basis for deter­ mining average area purchase price safe harbors. If the Treasury Department and the IRS become aware of other sources of average purchase price data, including data that differentiate between new and existing residences, consideration will be given as to whether such data provide a more accurate method for calculating av­ erage area purchase price safe harbors.

.15 The average area purchase price safe harbors listed in section 4.01 of this revenue procedure are based on FHA loan limits released December 2, 2020. FHA loan limits are available for statistical ar­ eas in each state, the District of Columbia, Puerto Rico, the Northern Mariana Islands, American Samoa, the Virgin Islands, and Guam. See section 3.03 of this revenue procedure with respect to FHA loan limits revised after December 2, 2020.

.16 OMB Bulletin No. 03-04, dated and effective June 6, 2003, revised the definitions of the nation’s metropolitan areas and recognized 49 new metropoli­ tan statistical areas. The OMB bulletin no longer includes primary metropolitan sta­ tistical areas.