Net Rent vs. Gross Rent

The “net rent” is the amount a low-income household is charged to live in its unit. The “gross rent” is the net rent plus the utility allowance for the unit plus any non-optional fees.

The formula is rent charged to the tenant plus utility allowance cannot exceed the LIHTC gross maximum rent. The IRS gives clear and important guidance on this subject. Utilities normally are items such as electric, heat, water, sewer, oil, or gas. However, if a supportive service or any other charge is mandatory it becomes part of the gross rent calculation. This may include parking fees, a telephone if one is required to open the door for visitors, meal service, or other required costs. Utilities are part of the rent, and overcharging rent can take the unit out of compliance.

The IRS policy is when the utility allowance changes, it must be put in effect no later than 90 days after the change. 

Potential danger. If you’re new to the tax credit program, you might not expect there to be more than one type of rent. But if you’re not aware of these concepts or you think that these terms are synonymous, you won’t know that you may need to lower the amount you charge a household when its utility allowance increases.