What the New Average Income Test Rule Means for Accounting Firms

Key Takeaways

• The Treasury Department's final rule (90 FR 46756) took effect September 30, 2025, setting recordkeeping and reporting requirements for the Section 42 low-income housing credit average income test.

• It reaches owners of low-income housing projects, the State or local housing credit agencies that monitor those projects, and, indirectly, their tenants.

• For accounting firms, the obligation is evidentiary: the rule does not change how the credit is calculated, but it does change what has to be documented and retained to support it.

• The rule sits under 26 CFR Part 1 (RIN 1545-BQ47) and carries no separate comment-period deadline — it is already in effect.

• Because the rule adds documentation duties rather than new tax calculations, the practical work falls on recordkeeping systems and the accounting teams that maintain them.

What this rule actually does

On September 30, 2025, the Treasury Department's final regulations on the Section 42 low-income housing credit average income test took effect (90 FR 46756). The rule sets out recordkeeping and reporting requirements tied to the average income test — one of the ways a residential rental project can qualify a building for low-income housing credits. If a building is part of a project using the average income test to qualify for the credit, the owner now has a defined set of records to keep and reports to make in order to demonstrate that qualification.

The rule does not change the income-limit math behind the average income test itself. What it changes is the evidentiary trail — what has to be recorded, and made available, to prove a project is doing what the credit requires. That is why this reads as much like a compliance-operations rule as a tax rule: the obligation lands on recordkeeping systems, not on the credit calculation.

For accounting teams, the practical shift is straightforward to describe even though it touches many files: a project's eligibility for the credit under the average income test now depends on documentation that has to exist, be organized, and be produced on request — not just on the underlying income figures being correct at move-in. Recordkeeping that used to live informally in a property manager's files becomes something a State or local housing credit agency can expect to see in a defined form, and something an accounting or compliance team may need to assemble, review, or reconcile on the owner's behalf.

Source: Federal Register / eCFR. The rule is codified at 26 CFR Part 1 (RIN 1545-BQ47) and was published September 30, 2025 — the same day it became effective.

Who is affected

The final regulations name three groups directly: owners of low-income housing projects, State or local housing credit agencies that monitor project compliance, and — indirectly — tenants living in those projects (Federal Register). A fourth group is affected in practice rather than by name: the accounting firms and finance teams that prepare, review, and retain the documentation these owners must produce.

Practically, the reach is broader than the three named categories suggest. A housing project's compliance file typically passes through several hands before an examiner or agency ever sees it — property management, the owner's internal accounting function, and often an outside accounting or advisory firm retained specifically to keep tax-credit compliance current. This rule changes what has to be in that file and how it has to be organized, which means every one of those hands touches a slightly different process than before.

For Accounting Firms specifically, this rule reaches:

• Audit and tax teams engaged by housing project owners to support average income test compliance in their books and tax filings.

• Compliance and advisory practices that work with State or local housing credit agencies on monitoring procedures.

• Outsourced controller and back-office functions that maintain the underlying tenant-income and unit-mix records the test depends on.

What Accounting Firms should do before the date

The rule has been in effect since September 30, 2025 (90 FR 46756), so for any Accounting Firm with clients using the average income test, "before the date" work is really "now" work. In practice, that means:

1. Confirm which client properties use the average income test to qualify for the Section 42 credit, rather than the older minimum-set-aside tests — the new recordkeeping duties attach specifically to average-income-test projects. Getting this wrong at the client-portfolio level means applying the new documentation duty to properties the rule doesn't reach, or missing it on ones it does.

2. Inventory existing documentation against what the rule requires, and flag gaps before the next compliance-monitoring cycle with the relevant State or local housing credit agency (Federal Register). A gap a firm finds during its own review is a manageable finding; the same gap found first by the monitoring agency is a compliance incident.

3. Align internal recordkeeping calendars with each agency's monitoring schedule, so evidence is assembled continuously rather than reconstructed under deadline pressure. Agencies don't all run on the same clock, so a firm with clients in several States is really managing several independent calendars against one federal recordkeeping standard.

4. Brief housing-project-owner clients on the distinction between the credit calculation (unchanged) and the new documentation duties (the actual scope of this rule), so expectations are set correctly. Owners who assume the credit amount itself is changing may under-invest in the recordkeeping side, or over-invest in re-checking calculations that were never in question.

None of this requires re-underwriting the credit. It requires treating the average income test's paperwork the way a compliance program treats any recurring obligation — as an ongoing process with an owner, a cadence, and an audit trail. Firms that already treat routine tax-credit compliance disclosures as a standing, recurring workflow will find this rule an addition to an existing process rather than a new one to build from scratch. Firms that have handled average-income-test documentation informally, on a case-by-case basis, are the ones most likely to feel this rule as a step change rather than a minor update.

Operationalizing average income test monitoring at volume

For a firm with one or two average-income-test properties, a shared spreadsheet and a calendar reminder can carry this. For a firm serving a portfolio of housing project owners across multiple State housing credit agencies, the same recordkeeping duty multiplies — different monitoring cadences, different document requests, the same underlying obligation repeated many times over. That is the kind of standing, rules-based workflow US Tech Automations' agentic workflow platform is built to carry: routing document requests, tracking which properties still owe evidence for a given monitoring cycle, and keeping a timestamped record of what was collected and when — without changing how the average income test itself is calculated or reviewed. None of that changes who signs off on a client's compliance position; it changes how much manual re-checking a firm has to do to get there, and how defensible the resulting record is if a monitoring agency asks for it later.

How this fits the broader regulatory window

This rule is one entry in a larger set. This brief draws on a point-in-time index of 259 U.S. federal rules published July 1, 2024 – July 5, 2026 by 10 agencies governing the industries this compliance series covers (Federal Register). The Section 42 average income test rule is a useful example of the broader pattern in that index: agencies increasingly attach recordkeeping and monitoring duties to existing benefit programs rather than rewriting the underlying benefit itself. For Accounting Firms, that pattern means compliance work is shifting toward continuous documentation, not just periodic filings. Housing-credit compliance is a recurring category in that index precisely because the credit itself is durable but the recordkeeping obligations layered onto it keep shifting. For a firm tracking several federal compliance regimes at once — tax credits, broker reporting, retirement-plan administration, and more — the average income test rule is a useful reminder that the underlying benefit rarely changes as often as the paperwork proving eligibility for it.

Frequently asked questions

When does the Section 42 average income test rule take effect?

The rule is effective September 30, 2025 — the same date it was published in the Federal Register (90 FR 46756).

What CFR part governs this rule?

The regulations are codified at 26 CFR Part 1, under RIN 1545-BQ47 (Federal Register).

Which agency issued this rule?

The Treasury Department issued the final regulations (Federal Register).

Who does the rule directly affect?

It directly affects owners of low-income housing projects and the State or local housing credit agencies that monitor their compliance, and it indirectly affects tenants living in those projects.

Does this rule change how the low-income housing credit is calculated?

No. It sets recordkeeping and reporting requirements for the average income test; it does not change the credit calculation itself (90 FR 46756).

Where can I read the official rule text?

The final regulations are published in the Federal Register at 90 FR 46756, which is the primary source for this brief.

Does the average income test rule add a new filing deadline?

No separate comment-period deadline attaches to this rule. It added recordkeeping and reporting requirements effective September 30, 2025, and those requirements were already in force as of the rule's publication date.

Who monitors compliance with the average income test day to day?

State or local housing credit agencies monitor project-level compliance with the average income test requirements, per the final regulations — accounting firms typically support the owner's side of that monitoring relationship rather than the agency's.

Related guidance

This brief is part of a wider series tracking federal compliance obligations across accounting, tax, and financial-services rules. Related reading: our brief on gross proceeds reporting requirements for brokers and our brief on retirement plan catch-up contribution rules cover two other IRS-driven recordkeeping obligations accounting firms are absorbing this cycle. Firms whose clients also raise capital through housing-credit syndication structures may find our brief on private fund adviser compliance requirements useful as a companion read.

Firms weighing how to keep pace with rules like this one across an entire client book can review US Tech Automations' pricing and plans.

Disclaimer

This article is for informational purposes only and is not legal or tax advice. It does not create an attorney-client relationship or any other professional-services relationship. The average income test rule affects individual properties and portfolios differently — consult a qualified professional, such as a tax advisor or attorney, about your specific facts before changing any recordkeeping process.

Last reviewed: July 5, 2026

Every date, citation, RIN, CFR reference, and figure in this post is copied verbatim from the Federal Register and eCFR as of the snapshot date. Nothing is estimated, modeled, or extrapolated. This is not legal or tax advice.