Enter the number of restricted units at each AMI designation. Designations are in 10-point increments from 20% to 80%. Market-rate units do not count toward income averaging — they enter the project total but not the weighted average.
How the test works
Under IRC §42(g)(1)(C), a project may elect income averaging as its minimum set-aside in place of the traditional 20-50 or 40-60 tests. Once elected, two arithmetic rules govern the unit mix:
- At least 40% of residential units in the project must be rent-restricted and occupied by households whose income does not exceed their unit's AMI designation. (For projects in New York City this floor is 25%; this calculator uses the national 40% default — adjust mentally if you are testing an NYC deal.)
- The average of the AMI designations of all restricted units in the project must not exceed 60%. The average is unit-weighted, not bedroom-weighted.
Designations are made in 10-percentage-point increments: 20%, 30%, 40%, 50%, 60%, 70%, 80%. A unit's rent is set at the level corresponding to its designation; a 70% or 80% unit pays a higher rent ceiling but is offset on the average by a deeper-targeted unit elsewhere in the project.
Why both rules matter at the same time
The two tests pull in opposite directions. Adding 80% AMI units raises the project's blended rent and improves cash flow — but each one consumes "headroom" against the 60% cap. To stay compliant, every 80% unit must be balanced by an offsetting deeper unit (typically at 40% AMI or below). The headroom number above tells you how many additional 80% AMI units you could add at today's mix before the weighted average crosses 60%.
Under the 2022 final regulations (26 CFR §1.42-19), a unit failure does not automatically disqualify the entire project: the average income set-aside is still met if a qualified group of units — at least 40% of the project's residential units — averages 60% AMI or less. Failing units cost their credits, but the project survives if a qualifying group remains. The Available Unit Rule and the Next Available Unit Rule as adapted to income averaging (Treas. Reg. §1.42-15(c)(2), finalized 2022) govern how vacancies and over-income tenants are managed without breaking the average — operations are not just a leasing problem, they are a compliance test.
Many state QAPs impose tighter set-asides than federal income averaging requires — common overlays include minimum percentages of 30% or 50% AMI units, points for deeper targeting, or caps on 80% AMI units. Passing this calculator means you pass the federal test; your state QAP and HFA scoring criteria are layered on top.
This tool is for feasibility-stage unit-mix design and QAP application math. It is not tax advice and does not replace 8609 forms, owner certifications, or your tax counsel's compliance review.
Sources & statutory framework
- Internal Revenue Code §42(g)(1)(C) — income averaging election.
- Treas. Reg. §1.42-19 — final regulations on the average income test mechanics (T.D. 9967, Oct 12, 2022).
- Treas. Reg. §1.42-15(c)(2) — Available Unit Rule and Next Available Unit Rule as adapted for income-averaging projects (T.D. 9967, Oct 12, 2022).
- Consolidated Appropriations Act of 2018 — created the income averaging election as a third minimum set-aside option.
- For the full practitioner explainer, see our LIHTC Income Averaging guide.