To verify proper application of tax credits in lease agreements, follow these key compliance steps:
1. Verify Tenant Eligibility
- Income verification: Obtain third-party income documentation (e.g., employer verification, benefit statements) dated within 90 days of lease execution.
- Special status verification: For disability or homelessness tax credits, secure written confirmation from physicians, Social Security Administration, or homeless service providers.
2. Validate Rent Structure
- Market rent calculation: Ensure rent aligns with 10% credit eligibility per Virginia’s Housing & Community Development Tax Credit guidelines.
- Utility inclusion: If utilities are owner-paid, verify gross rent reflects full payment without tenant utility charges.
3. Document Lease Terms
- Clear rent allocation: Explicitly state base rent amount and any tax credit-related reductions in the lease.
- Compliance clauses: Include provisions requiring annual income recertification and tenant cooperation for eligibility verification.
4. Monitor Ongoing Compliance
- Annual recertification: Complete new Tenant Income Certification forms within 12 months of initial certification, with documentation.
- File retention: Maintain verification documents for IRS review, including:
- Signed Tenant Income Certification forms
- Third-party income/disability verification
- Rent calculation worksheets
5. Cross-Reference Requirements
Confirm alignment with both IRS regulations (Section 42(g)(3) minimum occupancy) and Virginia-specific rules regarding verification forms and submission timelines to the housing authority.
For lease reviews, compare rent amounts against the property’s tax credit allocation plan and confirm all special-status tenant documentation exists before executing agreements. Virginia’s tax credit program requires owners to submit verification materials directly to the housing authority for audit purposes.
Original article by NenPower, If reposted, please credit the source: https://nenpower.com/blog/how-can-i-verify-that-the-tax-credit-is-applied-correctly-in-the-lease-agreement/
