A.3. Utility Company Estimates

• (1) Under Treas. Reg. §1.42-10(b)(4)(ii)(B), any interested party (tenant, owner, or state agency) may request a written estimated cost of that utility for a unit of similar size and construction for the geographic area in which the building is located . This estimate becomes the appropriate utility allowance for all rentrestricted units of similar size and construction in the building. The local utility estimate is not available to buildings/tenants subject to Rural Housing Service or HUD jurisdiction.

• (2) Taxable Years Beginning Before July 29, 2008: Before Treas. Reg. §1.42-10 was revised, the election to use a local utility company estimate was permanent; i.e., the taxpayer could not switch back and forth between the local PHA and utility company estimates. State agencies reported that although utility companies may have been willing to provide interested parties (owner, tenant, state agency) with an initial estimate, utility companies were increasingly unwilling to provide estimates on an on-going basis. Accordingly, until the regulation was revised, the IRS did not challenge the owner’s return to using the applicable PHA utility allowance, provided that:

  • The taxpayer has demonstrated to the state agency that the local utility company was unwilling to provide an updated estimate, and

  • The owner had written approval from the state agency to use a mutually agreed upon utility allowance.

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• (3) Taxable Years Beginning After July 28, 2008: If neither the building nor tenants are subject to the rules described in 1-4 on page 18-1, then the local public housing authority (PHA) allowance is used. However, if an estimate is obtained for any unit in the building, that estimate is used as the utility allowance for all similar units in the building. Estimates may be obtained from a local utility company or a state or local housing credit agency, or calculated using HUD’s Utility Schedule Model or an energy consumption model.

• (4) In the case of deregulated utility services, the interested party is required to obtain an estimate from only one utility company even if multiple companies can provide the same utility service to the unit. However:

  • The utility company must offer utility services to the building in order for that utility company’s rates to be used in calculating the utility allowance.

  • The estimate should include all component deregulated charges for providing the utility service.

• (5) The utility allowance is “obtained” when the building owner receives, in writing , information from the utility company providing the estimated per unit cost of the utility. Receipt of the information from the utility company begins the 90-day period after which the new utility allowance must be used to compute gross rents.

• A.4. State or Local Housing Credit Agency – Taxable Years Beginning After July 28, 2008

• (1) Under Treas. Reg. §1.42-10(b)(4)(ii)(C),5 a building owner may obtain a utility allowance from the state agency that has jurisdiction over the building, provided the state agency agrees to provide the estimate. The building owner may obtain a utility allowance at any time during the building’s extended use period6 and the associated costs are borne by the building owner.

  • (2) The utility allowance is “obtained” when the building owner receives, in writing , information from the state agency providing the estimated per unit cost of the utility. Receipt of the information from the state agency begins the 90-day period after which the new utility allowance must be used to compute gross rents.

  • (3) Factors to Consider: The utility allowance must take into account, among other things, (1) local utility rates, (2) property type, (3) climate and degree-day variables by region in the state, (4) taxes and fees on utility charges, (5) building materials, and (6) mechanical systems.

  • (4) Actual Building Usage: The state agency may use actual utility company usage data and rates of the building for which the utility allowance is requested.

    • The data used to compute the estimate is limited to the building’s consumption data for a 12-month period ending no earlier than 60 days prior to the date the utility allowance will change. For newly constructed or renovated buildings with less than 12 months of consumption data,

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consumption data for the 12-month period for similarly sized and constructed units in the geographical area in which the building is located will be used.

• A.5. HUD Utility Schedule Model – Taxable Years Beginning After July 28, 2008

  • (1) Under Treas. Reg. §1.42-10(b)(4)(ii)(D),9 a building owner may calculate a utility allowance using the “HUD Utility Schedule Model” that can be found on HUD’s Internet site, the Low-Income Housing Tax Credits page at tools.huduser.gov/husm/uam.html or successor URL.

  • (2) Utility rates used for the HUD Utility Schedule Model must be no older that the rates in place 60 days prior to the date the utility allowance will change.

  • (3) The utility allowance is deemed “obtained” based on the date entered as the “Form Date” on the “Location” spreadsheet of the Utility Schedule Model. This date will also be reflected on the Form 52667, Allowances for Tenant-Furnished Utilities and Other Services. This date begins the 90-day period after which the new utilityallowance must be used to compute gross rents.

• A.6. Energy Consumption Model – Taxable Years Beginning After July 28, 2008

  • (1) Under Treas. Reg. §1.42-10(b)(4)(ii)(E),10 a building owner may calculate a utility allowance using an energy and water and sewage consumption analysis model (energy consumption model).

  • (2) Factors to Consider: The energy consumption model must, at a minimum, take into account specific factors including, but not limited to: (1) unit size, (2) building orientation, design and materials, mechanical systems, appliances, and characteristics of the building location.

• (3) Building’s Consumption Data and Utility Rates: The data used to compute the estimate is limited to the building’s consumption data for a 12-month period ending no earlier than 60 days prior to the date the utility allowance will change. For newly constructed or renovated buildings with less than 12 months of consumption data, consumption data for the 12-month period for similarly sized and constructed units in the geographical area in which the building is located will be used.

  • (4) The utility rates used for the energy consumption model must be the rates in place 60 days prior to the date the utility allowance will change.

  • (5) Estimates Provided by Licensed Engineer or Qualified Professional: The utility allowance must be prepared by a properly licensed engineer or a qualified professional. A qualified professional must be (1) approved by the state/local housing credit agency having jurisdiction over the building, and (2) mus not be related to the building owner within the meaning of IRC §§ 267(b) or 707(b).[11]

• A.7. Annual Review – Taxable Years Beginning After July 28, 2009

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• (1) Under Treas. Reg. §1.42-10(c)(2),12 a building owner must review the basis on which utility allowances have been established at least once during each calendar year and must update the allowance if required. Building owners may choose to calculate new utility allowances more frequently than once during a calendar year, provided the owner complies with the requirement of Treas. Reg. §1.42-10, including the requirement to notify the state/local housing credit agency and tenants.

• (2) First Year of the Credit Period

  • No review is required until the building has achieved 90 percent occupancy for a period of 90 consecutive days, or by [at] the end of the first year of the credit period, whichever is earlier. If the review is completed at the end of the year, the consumption rates as of December 31st of the first year of the credit period.

  • Consequently, the 90-day period will begin no later March 1 of the year subsequent to the first year of the credit period.

• (3) Review Requirements:

  • The review must take into account any changes to the building such as any energy conservation measures and affect energy consumption and changes in utility rates.

  • Owners may use different methods for computing the allowances for different utilities.

• Owners are not prohibited from changing methods used for calculating a utility allowance in order to most accurately estimate the utility allowance.

• A.8. Updating Utility Allowances – Taxable Years Beginning Before July 29, 2008

  • (1) If the applicable utility allowance for a unit changes, the new utility allowance must be used to compute gross rents of LIHC units due 90 days after the change. As a practical matter, utility allowances are usually reviewed when HUD updates the Area Median Gross Income (AMGI) for the location (which may change the allowable gross rent). If the applicable utility allowance for a unit changes, the new allowance must be used to compute gross rents due 90 days after the change.

e must be used to compute gross rents of LIHC units due 90 days after the change. As a practical matter, utility allowances are usually reviewed when HUD updates the Area Median Gross Income (AMGI) for the location (which may change the allowable gross rent). If the applicable utility allowance for a unit changes, the new allowance must be used to compute gross rents due 90 days after the change.

• (2) PHA Utility Estimates: As explained in 24 CFR 982.517, Utility Allowance Schedule, paragraph (4)(c)(1), a PHA must review its schedule of utility allowances each year, and must revise its allowance for a utility category if there has been a change of 10 percent or more since the last time the utility allowance was revised. The 90-day implementation period begins when the PHA makes revised utility allowances available.

• A.9. Updating Utility Allowances – Taxable Years Beginning After July 28, 2008

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• (1) If the applicable utility allowance for a unit changes, the new utility allowance must be used to compute gross rents of LIHC units due 90 days after the change (90-day period). However, an owner is not required to implement new utility allowances until the building has achieved 90 percent occupancy for a period of 90 days or by the end of the first year of the credit period, whichever is earlier.

• (2) PHA Utility Estimates

  • As explained in 24 CFR 982.517, Utility Allowance Schedule, paragraph (4)(c)(1), a PHA must review its schedule of utility allowances each year, and must revise its allowance for a utility category if there has been a change of 10 percent or more since the last time the utility allowance was revised. The 90-day implementation period begins when the PHA makes revised utility allowances available.

• (3) Utility Company and State/Local Housing Credit Agency Estimates: If an owner obtains a utility estimate from a local utility company or state/local housing credit agency, the 90-day period will begin with the receipt of the information. The date of receipt is determined based on the date of the correspondence.

• (4) Example 1: Lower Estimate Obtained from Utility Company

  • The rent for an LIHC building must be lowered because a local utility company estimate obtained by the owner shows a higher utility cost than the utility allowance currently being used. The utility company’s letter is dated August 15, 2008. The lower rent must be in effect for rent due after November 13, 2008.

• (5) HUD’s Utility Schedule Model: The date entered as the “Form Date” on the “Location” spreadsheet of the Utility Schedule Model and reflected on the Form 52667, Allowances for Tenant-Furnished Utilities and Other Services, begins the 90-day period after which the new utility allowance must be used to compute gross rents.

• (6) Energy Consumption Model: The 90-day period will begin 60 days after the end of the last month of the 12-month period for which data was used to compute the estimate.