Compliance on Building or Site Basis

Q My company manages a tax credit site with three buildings. Must we always apply the tax credit program’s requirements separately to each building, rather than to the site as a whole?

A No. In many cases, you apply the tax credit program’s requirements separately to each building. But there are two possible exceptions to this rule. If your tax credit site has more than one building, it’s important to know about these exceptions.

First, you may need to meet your minimum set-aside on a per-site basis. Check line 8b of the owner’s IRS Form 8609 to find out whether the owner elected to do this.

Second, you need to follow the vacant unit rule on a per-site basis. If your site has more than one building, staff members need comply with the vacant unit rule on a per-site basis—not a per-building basis. Under Treasury Regulation §1.42-5(c)(1)(ix), if a low-income unit in the project became vacant during the year, reasonable attempts must be made to rent that unit or the next available unit of comparable or smaller size to tenants having a qualifying income before any units in the project were or will be rented to tenants not having a qualifying income.

If your staff members comply with the vacant unit rule on a per-building basis, they’ll probably be making mistakes that can cost the owner its tax credits for the vacant unit. And if the owner needed to count the vacant unit to meet its building’s minimum set-aside, the owner may risk losing all the credits for the building. Also, be sure to check with your state housing agency to see if it has any special requirements when following the vacant unit rule.

It’s important to note that, unlike the vacant unit rule, the next available unit (NAU) rule applies on a per-building basis. It’s meant to enable the owner to maintain the first-year applicable fraction for each building. So if you have more than one building at your site, make sure your staff understands that it must comply with the vacant unit rule and the NAU rule differently.