HOTMA Spotlight: Track Annual Inflationary Adjustments and Passbook Rate
Prepare for how these annual changes will affect income, asset, and eligibility determinations.
Low-income housing tax credit law requires site owners to use HUD’s Section 8 rules regarding income calculations. According to Treasury Regulations §1.42-5(b)(1)(vii), “Tenant income is calculated in a manner consistent with the determination of annual income under Section 8 of the U.S. Housing Act of 1937.”
As a result, it’s important to be aware of Housing Opportunity Through Modernization Act (HOTMA) provisions since the bulk of the legislation deals with reforms to the Section 8 Housing Choice Voucher program. And the IRS intends to follow HUD’s HOTMA final rule regarding the determination of income and assets.
Site owners should begin to understand and prepare for the implementation ramp-up that will begin with the HOTMA effective date of Jan. 1, 2024, and continue until the full compliance deadline of Jan. 1, 2025. With HOTMA, certain amounts used to make income, asset, and eligibility determinations are required to be adjusted by an inflationary factor on an annual basis. We’ll put a spotlight on the eight inflation-adjusted items and the passbook savings rate that will change annually.
8 Inflation-Adjusted Items
According to HUD, it will annually publish the eight inflation-adjusted items below no later than Sept. 1. The revised amounts will be effective on Jan. 1 of the following year. And the first set of adjustments for inflation will be made effective Jan. 1, 2025. All of the following inflation-adjusted figures will apply to HUD Multifamily and Public and Indian Housing programs—but not all of them will be applicable to LIHTC.
Self-certification of assets threshold. The amount of net assets for which an owner may accept self-certification by the family is $50,000 or under. The IRS considers the HOTMA final rule to supersede Rev. Proc. 94-65 and will allow for self-certification of assets when the cash value doesn’t exceed $50,000.
In other words, owners may determine net family assets based on a self-certification by the family that the family’s total assets are equal to or less than $50,000, adjusted annually for inflation, without taking additional steps to verify the accuracy of the declaration at admission or reexamination. Owners aren’t required to obtain third-party verification of assets if they accept the family’s self-certification of net family assets. When owners accept self-certification of net family assets at reexamination, the owner must fully verify the family’s assets every three years.
Imputed income from assets threshold. In general, income from assets is considered income. If it’s possible to calculate actual returns from an asset, you should use that amount. If it’s not possible to calculate an actual return on an asset and the net family assets are $50,000 or less, the imputed income from that asset is excluded. But if the net family assets are over $50,000, you must impute income for the asset based on the current passbook savings rate, as determined by HUD. The $50,000 figure will be annually adjusted for inflation to the nearest dollar. The threshold to impute income from assets if it isn’t possible to calculate actual returns applies to the LIHTC program.
Non-necessary personal property threshold. The threshold above which the total value of non-necessary personal property is included in net family assets is $50,000. This analysis applies to the LIHTC program. In other words, non-necessary items of personal property if the combined total value doesn’t exceed $50,000 is considered an excluded asset. Examples of these items are vintage baseball cards, a recreational boat, a coin collection, and art, so long as the total value is under the limit.
Income exclusion for earned income of dependent full-time students. With HOTMA, income is now defined broadly with an expanded and clarified list of income exclusions. For households receiving Section 8 assistance, earned income of dependent full-time students in excess of the amount of the deduction for a dependent is excluded. The deduction is currently $480 per dependent. This will be adjusted annually for inflation to the next lowest multiple of $25.
Deducting the first $480 of employment income for dependent full-time students age 18 or older from the family’s annual household income is relevant for HUD programs. But since the tax credit and HOME regulations don’t include allowances for adjusted income calculations like HUD programs, sites should simply count $480 for those programs.
It’s important to note that the LIHTC program has student restrictions as part of its eligibility criteria. The basic premise is that a household consisting entirely of full-time students will be ineligible for occupancy at a tax credit property unless it meets one or more of the five exceptions to the rule, which generally make allowances for non-traditional student households.
Income exclusion for adoption assistance payments. Earned income in excess of the amount of the deduction for a dependent is excluded. The deduction is currently $480 per child to be adjusted annually for inflation. Similar to income exclusions for earned income of dependent full-time students, sites should count up to $480 per child as income for adoption assistance payments.
Eligibility restriction on net family assets. HOTMA restricts families from receiving assistance in the Public Housing or Housing Choice Voucher program if their net family assets exceed $100,000 or if the family owns real property suitable for the family to live in. This figure is what will be adjusted annually in accordance with the Consumer Price Index for Urban Wage Earners and Clerical Workers.
The $100,000 threshold doesn’t apply to the LIHTC program. The LIHTC program requires you to follow HUD rules in determining a household’s income and not for asset limits on assistance eligibility. HUD’s implementation guidance says the new asset limit is discretionary for currently served residents. PHAs and Multifamily Housing owners are “given discretion at reexamination in enforcing the asset limitation on eligibility for assistance in § 5.618(a).” HUD says it will issue additional guidance on the use of this discretionary authority.
Mandatory deduction for elderly and disabled families. The elderly/disabled family deduction increases from $400 to $525 and applies to a family’s next interim or annual reexamination, whichever is sooner, for HUD programs. The amount of the deduction will be adjusted annually, and this deduction doesn’t apply to the LIHTC program.
Mandatory deduction for a dependent. The dependent deduction amount is $480, and this deduction amount doesn’t apply for LIHTC programs. This amount will be adjusted annually and applies to a family’s next annual or interim reexamination after the annual adjustment, whichever is sooner, for HUD programs.
2024 Passbook Rate
Along with the inflationary adjustments, HUD will also annually publish a passbook rate to become effective Jan. 1 of each year. The 2024 passbook savings rate will be 0.4 percent. According to HUD’s HOTMA implementation notice, HUD will annually publish a passbook rate based on the Federal Deposit Insurance Corporation (FDIC) National Deposit Rate for savings accounts, which is an average of national savings rates published on a monthly basis.
Owners must use the HUD-published passbook rate when calculating imputed asset income for net family assets that exceed $50,000 (a figure that’s annually adjusted for inflation). To ensure updated passbook rates may be used for reexaminations with an effective date of Jan. 1, HUD will calculate the update in July each year, using FDIC data from April, May, and June.