Renting Units on Month-to-Month Basis

Q A prospective household wants to rent a two-bedroom unit at our tax credit site on a month-to-month basis. We know that the tax credit program doesn’t allow short-term rentals. But the household doesn’t plan to vacate anytime soon and just wants flexibility. The household is income-eligible and renting to it wouldn’t violate the student rule. Can we rent to this household on a month-to-month basis?

A No. The owner of your site can claim credits only for units that are considered low income under the tax credit law. To qualify as low income, a unit must be leased on a non-transient basis. This rule prevents tax credit sites from being used for short-term housing, and this includes renting a unit on a month-to month basis.

The transient unit rule has exceptions for specific types of homeless shelters and single-room occupancy units (SROs). But generally speaking, the IRS will presume that a rental isn’t transient if the household commits to an initial lease term of at least six months. Because your prospective household wants to rent a two-bedroom unit, you should have the household sign a lease for an initial term of six months.

In cases in which an occasional household abandons a low-income unit or breaks its lease before the six months are up due to financial hardship or another valid reason, you aren’t likely to get in trouble by the IRS. But state housing agencies may raise questions if households at your tax credit site often move out before six months have passed.