HOTMA Adds New Income Exclusions for Affordable Housing Projects
Introduction
In February 2023, the U.S. Department of Housing and Urban Development (HUD) published the Final Rule implementing the Housing Opportunity Through Modernization Act (HOTMA). Subsequently, on September 29, 2023, HUD released Notice H 2013-10, offering additional guidance and clarifications regarding the implementation of the Final Rule. Among the many changes, HUD has added a number of new income exclusions, impacting a broad spectrum of HUD-assisted properties, projects under the Rural Housing Service Section 515 program, the Low-Income Housing Tax Credit (LIHTC) program, and properties with Tax-Exempt Bonds. This article will delve into the essential changes in income exclusions that affordable housing managers must acquaint themselves with.
Note: This article does not address all income exclusions listed in 24 CFR §5.609(b), but only those that are newly added or updated by the final rule.
Nonrecurring Income
The nonrecurring income exclusion replaces the former exclusion for temporary, nonrecurring, and sporadic income (including gifts), but it provides a narrower definition of excluded income in contrast to the former broad exclusion of temporary, nonrecurring, or sporadic income.
Income that will not be repeated beyond the coming year (i.e., the 12 months following the effective date of the certification), based on information provided by the family, is considered nonrecurring income and is excluded from annual income. 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 that has a specific end date and will not be repeated beyond the coming year during the family’s upcoming annual reexamination period will be excluded from a family’s annual income as nonrecurring income. This does not include unemployment income and other types of periodic payments that are received at regular intervals (such as weekly, monthly, or yearly) for a period of greater than one year that can be extended. For example, an increasing number of cities and states are piloting guaranteed income programs that have discreet beginning and end dates. This income can be excluded as nonrecurring in the final year of the pilot program.
For example, for an annual reexamination effective 2/2/24, guaranteed income that will be repeated in the coming year but will end before the next reexamination on 2/1/25 will be fully excluded from annual income.
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.
Following are examples of income that may be excluded:
PHAs/Owners may accept a self-certification from the family stating that the income will not be repeated during the coming year.
Student Financial Assistance
The treatment of student financial assistance depends on the HUD program,
student/household characteristics, and the type of financial assistance received by the student. The student financial assistance rules apply to both full-time and part-time students.
Student financial assistance to be excluded includes,
Other than funds excluded under the HEA, all student financial assistance must pay for actual educational expenses.
Actual covered costs include tuition, books, supplies, room and board, and fees required and charged to a student by an institution of higher education. For a student who is not the head, co-head, or spouse, actual covered costs also include the reasonable and actual costs of housing while attending school and not residing in the assisted unit.
The only situation in which HEA assistance is not automatically excluded from income is in the case of a Section 8 household during years in which a HUD appropriations act specifically requires that educational assistance in excess of actual educational costs be included in income for Section 8 households. In such years, all educational expenses in excess of actual cost will be included in income - including assistance that is part of the HEA. However, in such years, for students who are over the age of 23 with dependent children, the HEA assistance will be excluded.
Conclusion
The exclusions noted in this article apply to all affordable housing programs that are required to follow HUD rules when determining annual income. This includes not only projects with HUD assistance but also LIHTC properties, Rural Development Section 515 projects, Tax-Exempt Bond Projects, Housing Trust Fund Projects, and HOME projects (in most cases). Owners and managers operating properties under these programs should familiarize themselves with these new income rules and be prepared to put them into effect on January 1, 2024.
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