IRSFinal RuleSeptember 30, 2025

Section 42, Low-Income Housing Credit Average Income Test Procedures

HousingFinance & Banking

Summary

This IRS rule clarifies how affordable housing developments can prove they serve low-income residents by testing average tenant income levels. The regulation helps ensure that tax credit programs actually benefit people who need affordable housing the most.

Key Points

1Establishes clear procedures for measuring whether residents of federally-subsidized housing developments have incomes low enough to qualify as 'low-income'
2Affects housing developers and owners who receive federal tax credits for building or maintaining affordable apartments
3Requires developers to conduct income tests on their tenant populations to maintain compliance with federal housing requirements
4Helps prevent fraud and ensures tax benefits intended for poor and working families actually reach those populations
5Creates standardized testing methods so housing authorities and the IRS can consistently verify that affordable housing serves its intended purpose

Impact Assessment

If you are a housing developer using Low-Income Housing Tax Credits, this means you must follow updated procedures to document and verify that your tenants' average income meets the required thresholds to maintain tax credit eligibility.

Impact Level

Moderate

Geographic Scope

National

Compliance Cost

Moderate

Who is Affected

Financial InstitutionsHomeownersState Governments

Key Dates

Published

September 30, 2025

Regulatory Connections

Authorized By

Internal Revenue Code Section 42 Section 42

Amends CFR Sections

26 CFR Part 1

Read on Federal Register View Docket

This summary is for informational purposes only. It may not capture all nuances of the regulation. Always refer to the official text for authoritative information.