Security Deposit Complies With IRS For LIHTC

LIVINGSTON, NJ - SureDeposit, the nation's leading provider of security deposit alternatives to the multifamily industry, complies with IRS Regulation Section 1.42-11 for low-income tax credit housing. Specifically, the IRS allows security deposit alternatives in the form of optional tenant-paid insurance policies in lieu of security deposits for low-income housing tax credit units without requiring premiums to be included in gross rents.

While such optional tenant-paid insurance policies are not new, "the issue of whether security deposit insurance premiums should be included in restricted rent amounts 'has come up in multiple discussions with members of the industry at different levels,' said Grace F. Robertson, an IRS senior program analyst in charge of audits and enforcement for the tax credit program," reported both NAHMA News and HDR Current Developments.

In a recent interview, Robertson elaborated: "Rents for low-income housing tax credit units are restricted, but owners can charge fees for additional services other than housing if the fees meet one of three criteria. The fee cannot be a condition of occupancy, or it must be offered as an option, or it must be refundable. Even though security deposit alternatives are non-refundable, in my opinion, they are offered to residents as a reasonable option in place of a refundable security deposit, especially since a refundable security deposit may be cost prohibitive. Therefore, security deposit alternatives do meet one of the criteria and are allowable by the IRS." The IRS has not issued any written determinations or rulings on the matter.

SureDeposit, which pioneered the security deposit alternative industry in 2000, has approximately 75,000 low-income housing tax credit units under agreement nationwide. "While we have always known our program complies with the IRS guidelines, the recent discussions with owners and the IRS about it have helped to allay potential concerns. As the first and now largest provider of security deposit alternatives to the multifamily industry, we also understand how important our role has become to help educate the marketplace and share information so that owners and property managers can make informed decisions about their risk management and marketing initiatives," added SureDeposit CFO and Co-founder Dan Rudd.