Untangling Set-Aside Confusion

AAARRRGGGGHHH! As the Peanuts ® gang would say. While most of us appreciate having more options, it’s not always easy, especially because it can get more complicated.

My mother liked small, family-owned grocery stores. She always complained that the big box stored gave her too many options. Sometimes less is more.

In this article we talk about how some people are getting all tangled up with Minimum Set-Aside options and playing a game of mix and match that could get them in trouble. No one is immune. Let’s see if we can clear that up.

But first, a look back in time. Who among us recalls asking for more utility allowance options all those years ago. Yes? We were blessed with three more but it took us years to figure those out. Once we got there, other programs changed their rules (Noted: HOME for instance decided that PHA utility allowances could no longer be used for their units). You should have heard the screaming…

Now, let’s see if we can fix the confusion that occurs because Section 42 has added a third possible minimum set-aside.

Key point: Once an owner selects a set-aside, it’s ir(not)revocable; it sets maximum rent and income limits for all low-income units on a project.

The Average Income Set-aside is very popular because owners can elect set-asides between 20-80% of Area Median Gross Income as long as the AVERAGE is 60%. (Check with your state agency. Some are setting the 60% average below 60%.) Tracking that average into each unit can be at least interesting.

Note that it can be a bit tricky for owners to decide which units to set-side at what percent of AMGI because it must be elected before the project is

awarded credits and placed in service, but that’s how it works. Owners must be market savvy from the get-go. It’s also very important to know that whatever set-asides are elected, the state housing finance agency and the municipality must be in favor.

Once those set-asides are selected for each unit, they stick. Yes, a household’s income can increase above that set-aside limit, but at move-in they must qualify for that set-aside. If their income increases, the Available Unit Rule must be applied judiciously.

The 20/50 or 40/60 Set-aside election

There were the only two set-aside options before the Income Average Set-aside came along on March 23, 2018. Most Section 42 properties in existence today are under these ‘old’ standards and do not have the flexibility of the Average Income Set-aside.

While the election of either of these set the maximum move-in income and limit for a project, it is permissible to move households in below that maximum income and rent limits in fact, most, if not all state agencies require owners to set some units aside at those lower limits. NO ONE CAN MOVE IN ABOVE THAT LIMIT.


The 50% income limit for a household of four people is $40,350. When a 20/50 set-aside is elected on the 8609 Line 8b all low-income households must move in at or under that limit. The minimum requires that 20% of the units be set-aside at 50% or less of the Area Median Gross Income. However, that same 50% limit applies not only to the minimum 20% but also to all low-income units for that project. No one moves into a low-income unit in that project if their income exceeds 50% of AMGI. Rent, likewise, must not exceed 50% of AMGI.

The same rule applies with the 40/60 minimum set-aside. While the minimum requirement is that 40% of the units in the project be set-aside as low-income units, don’t get this wrong. All low-income units must be rented to households at 60% of AMGI or less. See how easy it is to get confused?

With the Average Income election, you can move people in at various set-asides as long as the average for the project is 60%. However, if the project is under either the 20/50 or 40/60 election on the 8609 Line 8b, ALL low-income households must qualify under that specific limit the time of move-in.

Check here to see if you’ve got it!

1) A project is under the 20/50 set-aside. The income limit is $40,350.

A household’s income is $42,750.

Can that household move into a 50% unit? YES NO

2) A project is under the 40/60 set-aside. The income limit is $48,420.

A household’s income is $42,750.

Can that household move into 60% unit? YES NO

3) A project is under the Income-averaging set-aside. The income limit for an 80% unit is $59,850.

A household’s income is $52,237.

Can that household move into a project with the income averaging set-aside? YES NO

Answers: #1: NO

Answer #2: YES

Answer #3: YES IF an 80% unit is available and the average AMGI for the project remains at 60% or less.

TheoPRO is writing this because we know people are confused. Please don’t get this wrong. If you’re not sure what to do; if you’re worried, uneasy, or screaming AAARRRGGGHHHH, let us help you before it’s too late.

What a difference YOU make to life and affordable housing!

Vivian Probst HCCP, SHCM Founding Partner of The TheoPRO Group

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