Examination of Income: Rents & Other Sources of Income

Gross income is to be considered and the minimum income probes completed. See Chapter 20. Generally, taxpayers owning IRC §42 projects are single-purpose entities and the rents from

leasing residential rental units will be the primary source of income. In addition to the records needed to complete the examination of income, the taxpayer should also provide:

• Description of residential rental units, including total number of units, total number of low-income units, size (number of bedrooms) and rents charged for low-income and market-rate units. Also identify units for on-site managers or security personnel.

• Documentation that rents are correctly restricted, including computations of the maximum allowable gross rent based on unit size.

• Sources of rent subsidies; e.g., HUD section 8 payments.

• Utility allowances and documentation of the computation.

• Fees for services provided to tenants in addition to housing; e.g., providing meals or cleaning services in assisted living housing.

• Other income from related activities; e.g., vending machines, laundry facilities, or charges for cable/satellite television.

• Other income sources such as from the commercial use of a portion of the property; e.g., the taxpayer may receive income for a cell phone tower installed on the roof of a building.

• Documentation of funds received from other sources; e.g., federal grants or subsidies received during the year, additional capital contributions, or loan proceeds.