Navigating Changes in Asset Rules under the HUD Final Rule Implementing HOTMA
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 alterations, significant changes pertain to the handling of assets for families residing in properties subject to HOTMA, 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 asset rules that affordable housing managers must acquaint themselves with.
Asset Limitation
HOTMA introduces a restriction on the eligibility of a family to receive assistance if the family possesses real property suitable for occupancy as a residence or has assets exceeding $100,000, adjusted annually for inflation. While this rule applies to new applicants, owners have discretion during recertification when enforcing the asset limitation on eligibility for assistance. HUD is expected to issue additional guidance concerning the use of this discretionary authority.
Regarding assets, HUD provides clarification that net family assets do not encompass the value of “non-necessary” personal property items with a combined value of $50,000 or less, subject to annual inflation adjustments. Notably:
- Federal tax refunds or refundable tax credits are excluded from net family assets for 12 months after receipt.
- Non-revocable trusts are not considered assets if they are not controlled by a household member.
- The value of any “baby bond” account established, authorized, or funded by Federal, State, or local government is excluded as an asset.
Necessary & Non-Necessary Personal Property
Necessary personal property is exempt from net family assets calculations. Non-necessary personal property, exceeding a combined value of $50,000 (adjusted for inflation), is included in net family assets. Necessary personal property encompasses items essential for maintaining, using, and occupying the residence, supporting employment, education, health, and wellness. This category extends beyond mere essentials, including personal effects, convenient items, those assisting household members with disabilities, and reasonable accommodations for disability-related needs.
Non-necessary personal property includes items such as campers, motorhomes, travel trailers, all-terrain vehicles (if not for day-to-day transportation), bank accounts, financial investments, recreational boats, expensive jewelry without religious or cultural value, collectibles, equipment not generating business income, and luxury items.
Remember, if the total value of all non-necessary personal property is $50,000 or less, it is not combined with other assets for the $50,000 limit calculation. For instance, if someone owns real estate valued at $80,000 and non-necessary personal property worth $40,000, the total assets are $80,000. However, if the non-necessary personal property’s value were $80,000, the total assets would be $160,000.
Other Changes to Asset Rules
HOTMA and the Final Rule now include “actual” income from assets in the income definition. This necessitates counting any actual income received as family income. Imputed income applies to assets exceeding $50,000 when no actual income can be computed.
A key procedural change is introduced, where actual income is calculated for some assets, and imputed income is calculated for others with a combined value exceeding $50,000, effectively combining both income streams.
Notably, financial assets like bank accounts with zero income (0% interest or no dividends) do not incur imputed income, whereas non-financial assets, like real property or non-necessary personal property, are subject to imputation.
PHAs or owners may determine net family assets based on self-certification by the family, provided the assets do not exceed $50,000, and full verification is required every three years. However, LIHTC purposes may have different requirements for declarations, including the expected income from assets.
The asset limitation rule, restricting assistance for families with real property suitable for occupancy or assets over $100,000, applies to various housing programs but not to the LIHTC program.
Exceptions to the real property restriction exist, including disability-related needs, distance to work or educational institutions creating hardship, and properties posing health and safety risks.
The $100,000 asset limitation does not apply to LIHTC properties.
Retirement accounts recognized by the IRS are not counted as assets, and educational savings accounts are exempt as well.
Owners have discretion in enforcing asset limitations during recertification, with additional HUD guidance expected.
Conclusion
The changes in asset rules under the HUD Final Rule implementing HOTMA have far-reaching implications for affordable housing managers. Understanding the nuances of asset limitations, necessary vs. non-necessary personal property, and imputed income calculations is vital for compliance.
It’s essential to note that these rules will come into effect on January 1, 2024, and operators of LIHTC properties and those with Tax-Exempt Bonds should consult with oversight agencies regarding potential implementation variations. As affordable housing stakeholders navigate these changes, thorough knowledge and adherence to the updated rules are imperative to ensure compliance and maintain the integrity of housing assistance programs.