4d Affordable Housing Incentive

Property owners who have affordable units can lower their property taxes.

The Minneapolis 4d program:

  • Preserves affordable homes in Minneapolis
  • Helps rental property owners get property tax reductions if they agree to keep 20% or more of their rental units affordable
  • Helps owners make existing buildings greener through cost sharing for energy efficiency improvements and solar installations

Resources

Affordable housing criteria

Rent is affordable to households making less than 60% of Area Median Income (AMI). Maximum rents for 2022-2023 are as follows:

  • Studio/Efficiency $1,232
  • 1 Bedroom $1,320
  • 2 Bedrooms $1,584
  • 3 Bedrooms $1,830
  • 4 Bedrooms $2,041
  • 5 Bedrooms $2,253
  • 6 Bedrooms $2,463
  • Single room occupancy (SRO) housing, $739 per bedroom. This includes single room occupancy housing, rooming houses and group homes.

As units turn over, affordable units are rented to households making less than 60% of AMI. In 2022-2023, this means that units must be rented to households making less than the following amounts:

  • $49,320 for one person
  • $55,340 for two people
  • $63,360 for three people
  • $70,380 for four people
  • $76,020 for five people

Benefits for property owners

  • 10-year eligibility for 4d property tax rate, also known as the Low Income Rental Classification (LIRC) which provides a tax rate reduction on qualifying units. For example, in 2021, the 4d class rate was 0.75, which was 40% lower than the 1.25 rate for multifamily rental properties. Some properties, such as single family rental homes, have a lower base rate of 1.00, meaning that the reduction in property taxes could be less significant. Other details about the property can impact the rate reduction, and changes in property value impact overall tax burden. For more information, see Minnesota Statute 273.128, subdivision 3.
  • Grant of $100 per affordable unit, capped at $1,000 per property
  • Payment of first year LIRC fees to the State of Minnesota
  • Green Cost Share funding up to $50,000 per building (up to 70% of project costs) with eligibility determined by a free energy assessment; and Solar Energy incentives up to $50,000 per project.

Program eligibility guidelines

Owners of market-rate rental properties must meet the following criteria:

  • Nearly all rental housing is eligible. This includes small 1-4 unit buildings as well as large properties. Single room occupancy (SRO) housing, rooming houses, group homes are also eligible.
  • At least 20% of the rental units in a building are affordable to households whose family income is at or below 60% of Area Median Income.Existing tenants in units that have program compliant rents do not need to be income qualified.
  • Going forward, income qualification for tenants is determined upon initial occupancy. Thereafter, increased incomes of tenants in affordable units will not violate the program requirements.
  • Tier 1 or 2 rental license with no rental housing license revocations or outstanding housing orders.
  • Buildings can include units with owner occupants, but only rental units are eligible for 4d tax status.
  • Building does not already qualify for LIRC tax status in Minnesota
  • Market rate new construction projects with at least 20% affordable units can receive up to a $100,000 incentive if pursuing ENERGY STAR, Zero Energy Ready, or Passive House Institute US (PHIUS) certification.

Property owner commitment

Record a 10-year affordability declaration on your property stating:

  • At least 20% of units at a property (e.g. 2 units at a 10-unit property) will remain affordable to households making 60% of Area Median Income (AMI). You may enroll up to 100% of the units in the building.
  • As units turn over, new tenants must have household incomes at or below 60% of AMI. The property owner must verify new tenant incomes and report them to the City on an annual basis. Building owners do not need to verify incomes of existing tenants.
  • Rent increases for tenants in affordable units are limited to 6% or less annually, unless the unit is turning over to a new tenant
  • Property owner or manager commits to accepting tenant based assistance (e.g. Section 8 vouchers) and agrees to affirmatively market vacancies by advertising units on HousingLink.org.
  • If a building is sold, declarations run with the property.

Modifications to 4d program commitments

Property owners:

  • Can reduce the number of units in the 4d program if they originally opted for a higher than required level of participation (20% of units in a building).
  • Must contact the City to begin the modification process. If a declaration has been in place for less than five years, the owner must pay a $2,000/unit fee for any opt-downs.

Application process and timeline 

October

  • City will activate the online application portal in early October. The City will accept applications until January 7, 2022. All applicants must complete an application checklist , and Rent Roll Template .
  • Applicants with multiple buildings should submit multiple applications.
  • Applicants should submit their applications as soon as possible for fastest review and processing by City staff.
  • Early applications will be reviewed on a first come, first serve basis. 

January

The 2022 application deadline was January 7, 2022. The next application window will be October, 2022 - January, 2023.

February

City staff will send enrollment paperwork to accepted applicants for review and signature, typically by early to mid-February. Standard forms of agreement can be reviewed at any time, and include the 4d Participation Agreement  and Declaration of Restrictive Covenants . In addition, applicants will need to complete a W9 and City ACH transfer form to receive the 4d enrollment grant, as well as the State of Minnesota’s  which is necessary to receive 4d tax status. 

Applicants will have 2-3 weeks to review and complete enrollment paperwork after receiving it. Given the limited timeline for enrollment, City staff recommend that applicants review the standard forms of agreement and seek outside legal or tax advice prior to receiving enrollment paperwork

Prior to March 31

City submits LIRC applications to Minnesota Housing on behalf of all selected applicants.

May - June

Applicants receive Minneapolis 4d incentive grants ($100 - $1,000 per property) via US mail.

New Construction: market rate developers should send an email during the pre-construction design phase to be considered for green construction incentives up to $100,000 per project.

Yearly compliance requirements and deadlines

January 31 – Annual Compliance form  is due to the City of Minneapolis by January 31st. This form must be completed and submitted for review yearly. Instances of non-compliance include: 

  • Tenants with incomes over 60% AMI, unless tenants lived in the property prior to recording of the declaration.
  • Rent increases of more than 6% in a year without unit turnover
  • Rent over 60% AMI
  • Units used for short term rentals, subleasing without income verification
  • Other violations of program covenants, such as a failure to address housing code violations

Non-compliant units will face loss of LIRC (4d) tax status until they come back into compliance. If a building has a 2nd year of non-compliance, the owner must pay a fine of $500 per unit to the City.

March 31 – The LIRC re-application form must be submitted separately by participants to Minnesota Housing before March 31st. Minnesota Housing will send this form to you each year by mail, and the form must be submitted yearly in order to maintain ongoing 4d tax status.

All new households that move in after you enroll in the 4d program must be certified as income qualified for your 4d units. Household income must be verified via an applicant’s prior year IRS 1040 form.

All adult applicants must complete the 4d Government Data Practices Act form .

Applicants who do not file a federal tax return must also sign Attachment 1 to the 4d GDPA form and provide alternative third party documentation of income. Examples of acceptable alternative documentation include paystubs and Social Security benefit letters. Calculate household income by annualizing gross income received multiplied by the number of pay periods or disbursements per year.

Program participants familiar with Low Income Housing Tax Credit rules for verifying and calculating household income may instead elect to use those procedures for certifying an applicant’s eligibility.

Verified income and monthly rent charged for your 4d units must be recorded in the annual compliance form. The City of Minneapolis will review this document for completion. Each year’s compliance form should reflect all activity for the taxable year. For the first year of participation, this time period will be the start date of your declaration (e.g. 3/1) through 12/31 of that year.

Other important dates

Green Cost Share energy efficiency and solar project annual application deadlines are published on the Green Cost share website.

August (annually) – Minnesota Housing certifies LIRC (4d) classifications. For example, if an applicant applies for 4d status during the October 2019 to January 2020 application cycle, Minnesota Housing would certify 4d status for that property by August 2020.

November (annually) – 4d program participants receive a notice of proposed levies and taxes. For example, if an applicant applies for 4d status during the October 2019 to January 2020 application cycle, they would receive a notice reflecting the new Low Income Rental (LIRC) rate, aka the “4d” tax rate in November 2020.

Annually, one year after applying for the Minneapolis 4d program – Program participants will receive tax bills, which will show the LIRC rate. For example, if an applicant applied for 4d status during the October 2019 to January 2020 application cycle, their 2021 tax bill would be the first bill to reflect the lower 4d tax rate. This lag time exists because an applicant cannot receive 4d status until Minnesota Housing certifies LIRC status, which happens in August each year.

Stay informed

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Selling property

The City works several with non-profit partner organizations that can buy properties and help apartments stay affordable by utilizing City financing. For more information, contact us.

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4d Affordable Housing Incentive Program

Contact us

4d Affordable Housing Incentive Program

Community Planning & Economic Development (CPED)

Phone

612-673-5055

Address

Public Service Building
505 Fourth Ave. S., Room 320
Minneapolis, MN 55415

Community Planning & Economic Development (CPED)

Address

Public Service Building
505 Fourth Ave. S., Room 320
Minneapolis, MN 55415