Exempt units, such as Exempt Management units and Exempt Security units, are very common in LIHTC projects. They help maintain safe, decent and sanitary living arrangements for everyone. Since these units are an integral part of the LIHTC program, the IRS allows all exempt units that have been deemed necessary for the project, to be included in the eligible basis; however, they are excluded from the applicable fraction. This is so it does not affect how much credit the project can generate.
In most cases, exempt units are approved at time of application. For those projects that determine they are needed after the time of application, most state agencies have a process that must be adhered to prior to considering one or more of your units exempt.
A gray area regarding these units has been whether or not rent can be charged. The IRS issued a Program Manager Technical Assistance (PMTA) memo that stated, “The general-public use requirement of 1.42-9 does not apply in the case of units for resident manager or maintenance personnel in a qualified low-income building because the units are not residential units, but facilities reasonably required for the project.” This guidance clarifies that charging rent for an exempt unit is not a factor in determining if a unit or units can be considered exempt.
With this guidance it is still important that an owner show that the exempt unit is reasonably required for the project. There are many factors involved in making this determination and typically, it will need to go through your state agency. Additionally, an owner should check with their agency to determine their policies on charging rent on these units.