LIHTC income averaging: how the 60% average works in practice

Income averaging is the third minimum set-aside, added to section 42(g)(1) in March 2018. At least 40% of the units must be rent-restricted and occupied by households under the income level you designate for each unit, and the designations must average 60% of area median income or less. Designations come in 10-point steps from 20% to 80%.

Under the 40-60 test every unit is capped at 60%. Under averaging you can place some units at 70% or 80%, where rents are higher, and pay for them with 30% or 40% units that reach households the 60% unit never could.

Where the limits come from

You don’t compute your own 80% limit from a median income. The IRS ties every level to HUD’s very low-income limit for the same household size, which is the 50% figure on the MTSP table. Rev. Rul. 2020-4 spells it out:

Designation	Share of the 50% limit
20%	40%
30%	60%
40%	80%
50%	100%
60%	120%
70%	140%
80%	160%

So in an area where the 50% limit for a family of four is $50,000, the 80% limit for that family is $80,000 and the 30% limit is $30,000.

Rents follow the income limit. The maximum gross rent for a unit is 30% of the designated income limit for the imputed household size (one person for a studio, 1.5 people per bedroom), and gross rent includes the utility allowance. Look up any county’s 2026 levels, and the rents they set, in the income and rent limits tables.

A worked rent roll

Take 100 units, all low-income. Here is one mix that averages exactly 60%:

Designation	Units	Points
30%	10	300
50%	20	1,000
60%	40	2,400
70%	10	700
80%	20	1,600
Total	100	6,000

6,000 points over 100 units is 60.0. Swap two of the 60% units to 80% and the average rises to 60.4, which fails. You’d need to move one 60% unit down to 20% to get back to 60.0. The test counts designation points, so every upward move needs a matching downward one.

Whether the mix pays depends on the spread between your local rent limits and the market. In a county where 80% rents sit above market, the 80% units add nothing and the 30% units still cost you. Averaging helps most where the market can absorb rents at 70% to 80% but the 60% limit leaves money on the table.

Rules that catch people

• The election is permanent. You pick the set-aside on Form 8609 and can’t switch later.
• Designations live at the unit level, but the test runs on the project. The final regulations (26 CFR 1.42-19, T.D. 9967, published October 2022) govern how designations are recorded and how a failing unit can be dealt with. A final rule published September 30, 2025 (FR Doc. 2025-19005) finalized procedures that had been issued as temporary regulations.
• High-cost areas get a lower floor. In New York City, a high-cost housing area under section 142(d)(6), the minimum share is 25% of units instead of 40%.
• Your state’s QAP may add its own rules. Some agencies cap how many 80% units they’ll accept or score deeper targeting higher. Read the QAP before you design the mix.

If the averaging mix is part of a deal you’re pricing now, the credit estimator shows what the set-aside does to qualified basis, and the Janover Capital desk can size the debt against the blended rents.