F.7. Calculation Methods

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• (1) Pre-1990: Gross rent for properties receiving tax credit allocations or bondfinanced buildings placed in service before January 1, 1990 and for which the election6 to determine rents based on number of bedrooms was not made, may not exceed thirty percent (30%) of the HUD-determined median income limit adjusted for the actual number of people in the household for the area in which the property is located. Under this method, the maximum allowable rent varies with the number of individuals occupying the unit. This is the method used prior to the Revenue Reconciliation Act of 1989.

• (2) Post-1989: For properties receiving tax credit allocations or placing bondfinanced buildings in service after December 31, 19897 and for pre-1990 properties subject to the bedroom election under Rev. Proc. 94-9, maximum gross rents are computed based on the number of bedrooms in the unit. Units with no separate bedroom are treated as being occupied by one person and units with separate bedrooms are treated as being occupied by 1.5 persons per each separate bedroom.

• (3) Example 1: Computation of Maximum Allowable Gross Monthly Rent

  • The owner of an LIHC building with 1 and 2-bedroom units elects the 4060 minimum set-aside. For 2009, HUD provides the following information:

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• For a 1-bedroom unit, the unit is treated as occupied by 1.5 persons. The income limit is computed by averaging the “very low income” income for a 1-person household and a two-person household. (Note: Averaging is necessary whenever the number of persons deemed to occupy the unit is not a whole number.) The result is then multiplied by 1.2 to compute 60% of AMGI.

[($27,550 + $31,500) ÷ 2] x 1.2 = $35,430.00

• The maximum allowable annual rent is computed by multiplying the income limit for 1.5 persons by 30 percent.

$35,430 x .30 = $10,629.00

• The maximum allowable monthly rent is computed by dividing the maximum allowable annual rent by 12 months.

$10,629 ÷ 12 months = $885.75 per month

• For a 2-bedroom unit, the unit is treated as occupied by 3 persons. The maximum annual rent is computed as:

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$35,400 x 1.2 x .30 = $12,744.00

• The maximum monthly rent is computed as:

  • $12,744.00 ÷ 12 months = $1,062.00 per month

• (4) Note: The bedroom method calculation may be applied only for households moving into units after the date the bedroom election was made. Units with households living in the property before the date of the election will continue to be charged rents based on the number of family members actually living in the unit until such time as a turnover in occupancy occurs.

(5) Example 2: Rent Exceed Limit - Bedroom Election

• Assume credits were allocated in 1988 and the owner elected by February 7, 1994 to use the bedroom election to calculate rent. A one- person household moved into a 2-bedroom unit on February 1, 1994 and paid the maximum one-person gross rent of $300 and a $50 utility allowance. Following the bedroom election, the owner raises this household’s rent to the maximum two-bedroom rent of $500, plus a $50 utility allowance, for a total rent of $550.

• This is not allowable because the household moved into the unit before the date of the election and the rent of $550 is over the allowable maximum. Rent in this unit may only be changed to the bedroom calculation method on the date a new household moves in. The owner must immediately reduce the rent charge to $300 rent, plus a $50 utility allowance. Date of correction is the date of the lease amendment.