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Does this over-income tenant trigger the next available unit rule?

A low-income unit stays low-income when its tenant's income rises, up to 140% of the applicable limit. Past that, the unit still counts only until a comparable or smaller unit in the same building is rented to someone over the limit, so the next one has to go to a qualifying household (IRC 42(g)(2)(D)).

Minimum set-aside
The 50% or 60% limit; for averaging, the unit's designated limit.

Example: the current limit for the unit and household size is $52,800 and the household now earns $78,000. The threshold is 140% of $52,800, or $73,920, so the next available unit rule applies.

Rules: IRC 42(g)(2)(D)(i)-(iv); 26 CFR 1.42-15; 26 CFR 1.42-19 for income averaging (T.D. 9967, October 2022, amended by a final rule of September 30, 2025, FR Doc. 2025-19005). Current limits: HUD's MTSP income limits or your agency's published chart.

What the rule asks of you

Once a tenant passes the threshold, the over-income unit keeps counting toward the applicable fraction only while every comparable or smaller unit that comes open in the building goes to a new tenant who qualifies. Rent a comparable unit to someone over the limit and the over-income unit stops counting, which lowers qualified basis and, inside the compliance period, can mean recapture.

Deep rent skewed projects (an election under 142(d)(4)(B)) get the 170% threshold but a stricter trigger: the unit stops counting if any low-income unit in the building is rented to a new resident earning over 40% of area median income (42(g)(2)(D)(iv)).

In a 100% low-income building every vacancy has to go to a qualified tenant anyway, so the rule adds little. It bites in mixed-income buildings, where market units come open alongside restricted ones.

Under income averaging

The threshold is 140% of the greater of the 60% limit or the unit's designated limit (42(g)(2)(D)(iii)). That protects tenants in deeply targeted units: a tenant in a 30% unit isn't over the threshold at 140% of the 30% limit, only at 140% of the 60% limit. The final regulations at 26 CFR 1.42-19 set how designations are recorded and what an owner can do when a unit's status changes.

Questions people ask

Does a tenant whose income goes over the limit have to move out?

No. The unit keeps counting as low-income while the tenant stays. Only when income passes 140% of the limit (170% in a deep rent skewed project) does the next available unit rule kick in, and it governs the next vacancy, not the over-income tenant.

Which units count as comparable or smaller?

Units in the same building of a size comparable to, or smaller than, the over-income unit. Treasury regulation 26 CFR 1.42-15 sets the details, including how mixed-income buildings apply it.

How does the rule work under income averaging?

The trigger is 140% of the greater of 60% of area median income or the unit's own designated limit. So a 30% unit's tenant can rise to 140% of the 60% limit before the rule applies.