How to Treat Household's Nonrecurring Income under HOTMA

There’s a narrower definition of excluded income now.

Low-income housing tax credit law requires site owners to use HUD’s Section 8 rules when calculating household income. 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.” Given this requirement, understanding how Housing Opportunity Through Modernization Act (HOTMA) provisions affect income calculations is crucial.

Under HOTMA, income includes all amounts, not specifically excluded, received from all sources by each household member who is 18 years of age or older, the head of household, or spouse of the head of household, in addition to unearned income received by or on behalf of each dependent who is under 18 years of age. Annual income also includes all actual anticipated income from assets even if the asset is excluded from net family assets but the income from the asset is not otherwise excluded.

To accurately calculate income, you need to be aware of specific income exclusions outlined in HOTMA regulations. We’ll take a closer look at the nonrecurring income exclusion.

Nonrecurring Income Exclusion

Under HOTMA, the nonrecurring income exclusion replaces the former broad exclusion for “temporary, nonrecurring, and sporadic income.” It has become a narrower definition of excluded income. Generally, this rule says to exclude income sources that a household cannot rely upon to pay for a household’s housing needs.

Based on the household’s information, nonrecurring income is income that either won’t be repeated beyond the coming year, such as the 12 months following the effective date of the certification, or won’t be repeated in the coming year based on information that the household provides. However, income received as an independent contractor, day laborer, or seasonal worker is not excluded from income, even if the source, date, or amount of income varies.

Income amounts excluded under this category may include, but are not limited to, nonrecurring payments made to the family or to a third party on behalf of the family to assist with utilities, eviction prevention, security deposits to secure housing, payments for participation in research studies depending on the duration, and general one-time payments received by or on behalf of the family.

The following list of exclusions is codified at 24 CFR Sec. 5.609(b)(24) as nonrecurring income. It’s important to note that this list doesn’t include all possible nonrecurring income sources:

• Payments from the U.S. Census Bureau for employment lasting no longer than 180 days and not culminating in permanent employment;
• Direct federal or state economic stimulus payments;
• Amounts directly received by the family as a result of state refundable tax credits or state tax refunds at the time they are received;
• Amounts directly received by the family as a result of federal refundable tax credits or federal tax refunds at the time they are received;
• Gifts for holidays, birthdays, or other significant life events or milestones, such as wedding, baby shower, or anniversary gifts;
• In-kind donations such as food, clothing, or toiletries received from a food bank or similar organization; and
• Lump-sum additions to net family assets such as lottery winnings, contest winnings, etc.

Online Crowdfunding Considerations

Because the chances of winning the lottery are so small, HUD considers lottery winnings as a nonrecurring one-time, lump-sum addition to net family assets that should not be included in the annual income calculation for income certification. But how do you classify funds from online fundraising platforms?

Many more people than lottery winners benefit from online crowdfunding sites and this scenario of obtaining funds through online crowdfunding may be more common among your applicants. Crowdfunding is a method of raising small amounts of money from a large number of people, typically via the internet. It’s often used to support personal expenses or charitable causes. These funds can come from platforms such as GoFundMe, Kickstarter, or Indiegogo, where individuals or organizations create campaigns to solicit donations from the public.

When conducting certifications under HOTMA rules, it’s essential for applications and recertification questionnaires to determine if the applicant or tenant has a GoFundMe or any similar crowdfunding account. Additionally, these forms should inquire whether the account has historically been funded for multiple rounds.

If the crowdfunding account has been funded for only one round, the balance should be considered a lump-sum asset. According to HUD guidance, whether these funds are considered nonrecurring income or lump-sum additions to net family assets depends on whether the household obtains the funds one-time or repeatedly.

Example: A household fundraises $5,000 online to help pay for personal expenses through GoFundMe. The manager verified that this was a one-time solicitation for donations of cash and that the household didn’t intend for this to be a recurring source of income. The $5,000 is a one-time, lump-sum addition to net family assets and should not be included in the annual income calculation [Example G4].

However, if the account has been funded multiple times, the proceeds must be included as income. Suppose at the next annual reexamination it’s shown that the household had solicited donations online a second time and raised an additional $4,500. Again, the household certified that it doesn’t intend for this to be a recurring source of income, but, because a pattern can be established, the $4,500 would not be considered a lump-sum addition to net family assets and should be included in the annual income calculation.