IRS Publishes New Utility Allowance Regulations

The IRS recently published in the Federal Register the final and temporary regulations regarding utility allowance sub-metering. Utility sub-metering is the implementation of a system that allows an owner of a tax credit site to bill tenants for individually measured utility usage.

The final regulations clarify the circumstances in which utility costs paid by a tenant based on actual consumption in a sub-metered rent-restricted unit are treated as paid by the tenant directly to the utility company. Now, an owner can sub-meter the property, bill the tenants for their actual energy usage, and now customize the utility allowances to reflect actual consumption, using the established methodology previously adopted by the IRS.

The temporary regulations extend the principles of these sub-metering rules to situations in which a building owner sells to tenants energy that is produced from a renewable source and that is not delivered by a local utility company.

These regulations are effective as of March 3, 2016.