Key Takeaway
The Next Available Unit Rule (NAUR) under IRC §42(g)(2)(D) requires that when a LIHTC tenant’s income rises above 140% of the applicable income limit at recertification, the next comparable vacant unit in the building must be rented to a qualifying low-income tenant. The over-income tenant can stay and keep paying current rent — but the property must restore its applicable fraction or risk losing credits.
What Is the Next Available Unit Rule in LIHTC?
The Next Available Unit Rule (NAUR) is an IRS compliance mechanism that protects the affordable housing stock in Low-Income Housing Tax Credit properties. It is codified at 26 USC §42(g)(2)(D) and detailed in the IRS 8823 Guide.
In plain terms: NAUR is triggered when a current tenant’s household income increases past a specific threshold. Rather than evicting the over-income tenant, the rule requires the property to compensate by renting the next available comparable unit to a qualifying household. This ensures the building maintains its required percentage of low-income units — the applicable fraction — without disrupting existing tenancies.
NAUR exists because LIHTC is fundamentally a deal between the property owner and the federal government: tax credits in exchange for maintaining a specific number of affordable units. When a tenant earns too much, the unit is no longer truly “affordable” in the program’s eyes, and the applicable fraction drops. NAUR provides the mechanism to restore it.
What Is the 140% Trigger and How Is It Calculated?
The NAUR is triggered when a tenant’s household income exceeds 140% of the applicable income limit at the time of annual recertification. This is not 140% of the Area Median Income (AMI) — it is 140% of the specific income limit that applies to that unit’s designation.
Here is how the calculation works:
- Identify the unit’s income designation. For example, a unit designated at 60% AMI means the applicable income limit is 60% of the Area Median Income for the household size.
- Determine the current income limit. According to HUD’s published income limits, a 60% AMI limit for a family of four in Sacramento County in 2026 is approximately $59,280.
- Multiply by 140%. In this example: $59,280 × 1.40 = $82,992.
- Compare to the tenant’s current income. If the household’s annual income at recertification exceeds $82,992, the NAUR is triggered.
Important: The 140% threshold is based on the current year’s income limits, not the limits in effect when the tenant moved in. Income limits are updated annually by HUD, so the trigger point shifts each year.
What Happens When the NAUR Is Triggered?
When a tenant’s income exceeds the 140% threshold, two things happen simultaneously:
- The over-income tenant’s unit is no longer counted as a low-income unit for purposes of the applicable fraction (though the tenant is not displaced).
- The property owner must rent the next available comparable unit in the same building to a qualifying low-income tenant at the restricted rent.
According to the IRS 8823 Guide, the property is considered out of compliance from the date the over-income status is identified until the applicable fraction is restored. This means the clock starts ticking at recertification — not when a unit becomes available.
What Is a “Comparable Unit” Under NAUR?
The IRS defines a comparable unit as one that is:
- In the same building as the over-income tenant’s unit (not just the same project, unless the project is a single building)
- The same size or larger than the over-income tenant’s unit (measured by number of bedrooms)
- Available for rent — meaning it is or will be vacant and ready for occupancy
A studio does not satisfy NAUR for a one-bedroom unit. A one-bedroom in a different building within the same project does not satisfy it either (unless the project election was made on a project-wide basis under §42(g)(3)(D)). This distinction matters in multi-building projects where owners may assume any vacant unit in any building will suffice.
What Happens to the Over-Income Tenant?
The over-income tenant is not required to move out. Under IRC §42(g)(2)(D)(ii), the tenant may continue to occupy the unit and is entitled to remain at the current restricted rent — the owner cannot raise rent above the LIHTC-restricted level for that unit designation. The tenant’s unit simply stops counting toward the applicable fraction until it is restored.
This is a common point of confusion. Many property managers assume an over-income finding means they must take action against the tenant. They do not. The action required is on the next available unit, not the current one.
However, once the applicable fraction is restored (a qualifying tenant moves into the comparable unit), the over-income tenant’s unit can be re-designated as a market-rate unit within the project, and the owner may charge market rent only if the applicable fraction is maintained. In practice, most owners keep the over-income tenant at restricted rent to avoid complications.
How Does NAUR Work Under the Average Income Test (AIT)?
The Average Income Test, established by the Consolidated Appropriations Act of 2018, adds significant complexity to NAUR. Under AIT, units are designated at varying income levels (20%, 30%, 40%, 50%, 60%, 70%, or 80% AMI), and the property must maintain an average designation of 60% AMI or below.
When a tenant in an AIT property exceeds 140% of their designated income limit:
- The NAUR is triggered for that specific unit’s designation level
- The next available comparable unit must be rented to a tenant who qualifies at or below the income level that restores the average to 60% or below
- The replacement tenant’s income designation may need to be lower than the over-income unit’s original designation to rebalance the average
For example: If a unit designated at 70% AMI triggers NAUR, the comparable unit may need to be designated at 50% AMI (or lower) to keep the overall project average at or below 60%. This requires careful math and proactive planning — unlike the standard minimum set-aside tests (20/50 or 40/60) where any qualifying tenant restores the fraction.
According to Novogradac’s AIT guidance, properties using the Average Income Test should maintain a “cushion” below the 60% average to absorb potential NAUR events without immediately falling out of compliance.
What If There Is No Comparable Available Unit?
This is a critical nuance that many compliance teams misunderstand. According to IRC §42(g)(2)(D)(i), there is no violation if no comparable unit is available at the time the NAUR is triggered. The obligation only attaches when a comparable unit becomes available.
Specifically:
- If all comparable units are occupied, the property is not out of compliance
- The property must rent the next comparable unit that becomes available to a qualifying tenant
- If a comparable unit becomes available and is rented to a non-qualifying tenant (or left vacant without good cause), that is the violation
- The obligation persists until fulfilled — it does not expire
This means property managers must track NAUR obligations as an ongoing “open item” and ensure the leasing team knows that certain unit types are restricted. A vacancy in a comparable unit type must be filled with a qualifying tenant before any market-rate or non-qualifying applicant.
How Is the Applicable Fraction Restored?
The applicable fraction is restored when a qualifying low-income tenant moves into the comparable unit and occupies it under a LIHTC-compliant lease at the restricted rent. At that point:
- The new tenant’s unit counts toward the applicable fraction
- The over-income tenant’s unit may either be re-counted (if the tenant still qualifies under current limits) or treated as a market-rate unit within the project
- Form 8823 should be filed noting the NAUR event, trigger date, and restoration date
State monitoring agencies — including CTCAC in California — will review NAUR documentation during compliance monitoring visits. The documentation trail matters: you need the recertification showing the over-income finding, the date the comparable unit became available, and the new tenant’s income certification (TIC) proving they qualify.
NAUR Step-by-Step Decision Tree
| Step | Action | Outcome |
|---|---|---|
| 1 | Complete annual recertification for existing tenant | Determine current household income |
| 2 | Compare income to 140% of applicable income limit | If below 140%: no NAUR trigger, stop here |
| 3 | If above 140%: flag unit as over-income | Unit no longer counts toward applicable fraction |
| 4 | Check for available comparable unit (same or larger, same building) | If none available: no violation, but obligation is open |
| 5 | If comparable unit is available: rent to qualifying tenant at restricted rent | Applicable fraction restored |
| 6 | If comparable unit becomes available later: rent to qualifying tenant before any non-qualifying applicant | Failure to do so = noncompliance |
| 7 | Document everything: recertification, over-income finding, comparable unit lease-up, new TIC | File Form 8823 if required by state agency |
| 8 | For AIT properties: calculate whether replacement designation restores 60% average | May require lower-tier designation on replacement unit |
Common Compliance Mistakes with NAUR
After reviewing hundreds of LIHTC compliance files and 8823 findings, these are the mistakes that recur most frequently:
- Confusing 140% of AMI with 140% of the applicable limit. A unit designated at 50% AMI triggers NAUR at 140% of the 50% limit — not at 140% of the full AMI. This is a lower threshold than many managers expect.
- Assuming any vacant unit in the project satisfies NAUR. The unit must be comparable (same or larger) and in the same building unless a project-wide election applies.
- Renting a comparable unit to a non-qualifying tenant while NAUR is open. This is the most common noncompliance finding. Once NAUR is triggered, the leasing team must be informed that certain unit types are restricted.
- Failing to track open NAUR obligations. If no comparable unit is available at trigger, the obligation persists indefinitely. Without a tracking system, it gets forgotten.
- Not adjusting for AIT rebalancing. Under the Average Income Test, simply filling the unit with any qualifying tenant may not restore compliance if the average designation exceeds 60%.
- Missing the documentation trail. Monitors need to see the recertification that triggered NAUR, the date the comparable unit became available, and the new tenant’s certification. Missing any link in this chain is a finding.
- Assuming NAUR only applies to initial qualifying tenants. NAUR can be triggered at any recertification for any low-income tenant whose income has increased, regardless of how long they’ve lived there.
How NAUR Interacts with HOTMA Changes
The Housing Opportunity Through Modernization Act (HOTMA), with key provisions taking effect January 1, 2027, changes how income and assets are calculated for HUD-assisted programs. While HOTMA primarily affects Section 8 and public housing, LIHTC properties that layer federal rental assistance will see indirect impacts on recertification income calculations — potentially changing which tenants cross the 140% threshold.
Properties with layered funding should review their recertification procedures in light of HOTMA’s revised income and asset rules to ensure NAUR triggers are correctly identified under the new methodology.
Ask Our AI About NAUR Edge Cases
NAUR situations get complicated fast — especially in mixed-income buildings, AIT projects, or properties with layered funding. If you’re dealing with a specific scenario (multiple over-income tenants, no comparable units across buildings, AIT rebalancing), our AI Affordable Housing Advisor can walk you through the analysis using current income limits and IRS guidance.
For a deeper dive into how rent limits are calculated for LIHTC units, see our LIHTC Rent Calculation Guide. And for the full picture of affordable housing compliance, visit our Affordable Housing Compliance pillar page.