IRS Issues Ruling on Determination of Income Limits for Average Income Minimum Set-Aside

On January 29, 2020, the IRS released Revenue Ruling 2020-4. This ruling outlines the requirements for determining the designated income limits under the Average Income (AI) Minimum Set-Aside.

The Conference committee report for the Tax Reform Act of 1986 stated that the Department of Housing & Urban Development (HUD) published Area Median Gross Income (AMGI) serves as the base for computing the Section 42 (LIHTC) income limits. It also stated that for purposes of the original 20/50 and 40/60 minimum set-aside tests, adjustments should be made in a manner consistent with determinations of Very Low-Income (VLI) families under Section 8.

Revenue Ruling 89-24 provided the manner in which to properly compute the Section 42 income limits, and that the limits would be calculated based on the VLI limits.

In adding the Average Income test, Congress did not indicate that a different HUD income level calculation category should be used. For this reason, the IRS will continue to use HUD’s determinations for VLI families as the starting point for determining the income limit for each income designation. For purposes of the AI set-aside, the seven income limits will be determined by computing them all from HUD’s VLI limits.

HUD’s VLI calculation, as adjusted by family size and consistent with the methods provided in Revenue Ruling 89-24, is to be used as the basis for determining the full range of income limits under the AI set-aside.

For the AI test under §42(g)(1)(c), the 20, 30, 40, 50, 60, 70, and 80 percent of AMGI income limitations will be calculated as follows:

  • 20% limit: 40% of the 50% limit as published by HUD;
  • 30% limit: 60% of the 50% limit as published by HUD;
  • 40% limit: 80% of the 50% limit as published by HUD;
  • 50% limit: HUD published VLI limit;
  • 60% limit: 120% of the 50% limit as published by HUD;
  • 70% limit: 140% of the 50% limit as published by HUD; and
  • 80% limit: 160% of the 50% limit as published by HUD.

Applying the Rule to Projects Already Allocated Credits


  1. A taxpayer requested an allocation of credits;
  2. The request made it clear that the taxpayer intended to elect the AI Minimum Set-Aside, the request clearly set forth a specific dollar amount for designated imputed income limits for a unit in the project, and that dollar amount is higher than the amount determined under this Revenue Ruling;
  3. The taxpayer’s determination of that amount was reasonable; and
  4. Prior to the publication date of this ruling, the HFA allocated housing credits in response to that request, then, for that taxpayer, for the remaining compliance period, the dollar amount for the income limits under this ruling for that unit will not be less than the reasonable amount.

If a tenant occupies a unit with an income in excess of the income required by this revenue ruling, as long as the determination of that higher income was reasonable, the tenant will be treated as having initially met the income limit for that unit.


This revenue ruling confirms that the method that has been widely expected with regard to the determination of the designated income limits under the AI set-aside is the method that is required by the IRS. This ruling should enable HUD to publish the AI income limits when the 2020 limits are published this spring.