News

HUD Provides Guidance on Non-Rent Fees for Subsidized Multifamily Housing Programs

In February 2024, the Department of Housing and Urban Development (HUD) provided guidance on existing policies regarding the fees that owners may and may not charge tenants. None of the guidance is new or reflects any change in HUD regulations. The purpose of the guidance is twofold: (1) to remind owners of the current requirements relative to fees and (2) to seek input from stakeholders on any possible changes to the requirements. Following is an overview of existing HUD policy regarding fees in addition to rent. Application Fees: Owners may not require fees or other costs to accept and process applications. These costs are considered project expenses. Charges at Initial Occupancy: Owners may not collect any money from tenants at initial occupancy other than rent and the maximum HUD-allowed security deposit unless they receive HUD approval to do otherwise. Pet Deposit: An owner of housing specifically designed for occupancy by the elderly and persons with disabilities may require tenants to pay a refundable pet deposit. The pet deposit applies only to tenants who own or keep cats or dogs in their units. HUD Handbook 4350.3 outlines the maximum amount of the pet deposit that may be charged by an owner on a per-unit basis. An owner may use the pet deposit only to pay reasonable expenses directly attributable to the pet's presence on the property, including (but not limited to) the cost of repairs and replacements to, and fumigation of, the unit and the cost of animal care facilities. Owners must return the unused portion of a pet deposit to the tenant within a reasonable time after the tenant moves from the property or no longer owns or keeps a pet in the unit. Screening Fees: Owners may not charge applicants for costs associated with screening applicants, including screening for criminal history or verifying income and eligibility. Hence, owners must not require applicants to pay credit report charges, charges for home visits, charges to obtain police reports or other costs associated with the above functions. These costs are considered project expenses. Security Deposit: Owners may collect a security deposit during the initial lease execution. However, the owner must collect a refundable security deposit at the time of the initial lease execution for the following programs:Section 8 New Construction with an AHAP executed on or after November 5, 1979;Section 8 Substantial Rehabilitation with an AHAP executed on or after February 20, 1980;Section 8 State Agency with an AHAP executed on or after February 29, 1980;Section 202/8;Section 202 PAC;Section 202 PRAC; and Section 811 PRAC. Owners may collect the security deposit on an installment basis. The security deposit amount established at move-in does not change when a tenant s rent changes. The amount of the security deposit to be collected is dependent upon: The type of housing program; The date the AHAP or HAP contract for the unit was signed and The amount of the total tenant payment or tenant rent. The HUD Handbook 4350.3, Figure 6-7, outlines the security deposit amount that may be collected for each program. When a tenant transfers to a new unit, an owner may: Transfer the security deposit, or Charge a new deposit and refund the deposit for the old unit. Assistance Animals: Owners may not require an applicant or tenant to pay a fee or a security deposit as a condition of allowing the applicant or tenant to keep an assistance animal. However, if an assistance animal causes damage to the unit or common areas of the dwelling, the owner may charge the individual for the cost of repairing the damage if the owner regularly charges tenants for any damage they cause to the premises. Attorney/Legal Costs: There may be no lease provision that the tenant agrees to pay all attorney and other legal costs if the owner brings legal action against the tenant, even if the tenant prevails. However, as a party to a lawsuit, a tenant may be obligated to pay attorney s fees or other costs if the tenant loses the suit. Owners may accept payment of court filing, attorney, and sheriff fees from tenants who wish to avoid or settle an eviction suit provided it is permitted under state and local laws, and the fees appear reasonable and do not exceed the actual costs incurred. Bad Behavior: Owners may not charge tenants for bad behavior, such as foul language, noise, or failure to supervise children. Checks Returned for Insufficient Funds: Owners may impose a fee on the second time, and each additional time thereafter, a check is not honored for payment. The owner may bill a tenant only for the amount the bank charges for processing the returned check.HUD or a Contract Administrator (CA) may authorize additional charges if such charges are consistent with local management practices and are permitted under state and local law. Owners of Section 202/8, Section 202 PAC, Section 202 PRAC, and Section 811 PRAC projects may never charge fees for checks returns for insufficient funds. Damages: Whenever damage is caused by carelessness, misuse, or neglect by the tenant, household member, or visitor, the tenant is obligated to reimburse the owner within 30 days of receiving a bill from the owner. The owner s bill is limited to actual and reasonable costs incurred by the owner for repairing the damages. Facilities & Services: Owners may not charge tenants separately for equipment and services included in the rent. Owners may charge tenants for other services or facilities (e.g., cable TV or use of community space in the project) only if all of the following conditions are met:Part C of the most recently approved rent schedule includes the services, facilities, and charges.A schedule of those charges has been posted or distributed to the tenants.The tenant can use those facilities or services if they are optional. If not previously authorized, the charges must be approved by HUD before implementation. Owners may charge for parking only in unsubsidized projects where HUD previously approved it. They may also charge for car heaters in cold climates where parking spaces are equipped with them. Infestation Treatment: Owners may not charge a tenant for the extermination cost unless the owner can demonstrate that the tenant's carelessness or neglect caused the infestation. Keys & Lockouts: Owners may charge tenants for answering lock-out calls and providing extra keys. At the time of move-out, the owner may charge the tenant for unreturned keys. Late Payment of Rent: Owners may charge a late fee if the tenant has been given at least five calendar days as a grace period to pay the rent. The rent must be received by the fifth day, not postmarked on that day. On the sixth day, the owner may charge a fee not to exceed $5.00 for the period of the first through fifth day that the rent is not paid. After that, the owner may charge a fee of $1.00 per day for each additional day the rent remains unpaid for the month. HUD or CAs may approve a higher initial late fee if (1) it is permitted under state and local laws, (2) it is consistent with local management practices, and (3) the total late charge assessed for the month does not exceed $30.00. An owner may deduct accrued, unpaid late charges from the security deposit at the time of move-out if such a deduction is permitted under state and local laws. An owner may not evict a tenant for failure to pay late charges. Owners of Section 202/8, Section 202 PAC, Section 202 PRAC, and Section 811 PRAC projects may never charge late rent payment fees. Meals Fee: Owners of properties for the elderly or persons with disabilities for which HUD approved a mandatory meals program before April 1, 1987, may charge a HUD-approved meals fee. The tenants pay such costs, and the fees are not rent. Meeting Space for Tenant Organizations: An owner may charge a reasonable fee, approved by HUD, as may normally be imposed for using such facilities in accordance with procedures prescribed by HUD for the use of meeting space. Other Charges: Owners may require tenants to pay other charges if:HUD or CA has approved the charges, and The schedule of charges is either:Listed in the lease agreement or Has been distributed to all tenants in accordance with the modification of the lease requirements and procedures listed in paragraph 6-12D of Handbook 4350.3. HUD s Office of Multifamily Housing Programs is seeking feedback from stakeholders regarding these policies. Owners and Agents of affected programs may provide comments and feedback to HUD at AssetManagementPolicy@HUD.gov. Responses are due by March 29, 2024.

A. J. Johnson Partners with Mid-Atlantic AHMA for December Training on Affordable Housing - April 2024

During the month of April 2024, A. J. Johnson will be partnering with the MidAtlantic Affordable Housing Management Association for two live webinar training sessions intended for real estate professionals, particularly those in the affordable multifamily housing field. The following sessions will be presented: April 16, Violence Against Woman Act - This two-hour webinar guides owners and managers of affordable housing developments subject to the requirements of VAWA. It covers the background of the law and discusses who the law protects. A full discussion of notice requirements, all required (and prohibited) documentation, lease bifurcation issues, actual and imminent threats, emergency transfer plans, and enforcement mechanisms. Recommendations relating to confidentiality procedures are also provided, as are the basic requirements of a VAWA Plan. April 18: Limited English Proficiency (LEP) and Section 504; Understanding the Requirements for Multifamily Housing - Two of the most misunderstood laws relating to federally assisted affordable housing are the rules regarding Limited English Proficiency (LEP) and the Section 504 requirements. This three-hour live webinar will cover the requirements of each and outline the basic steps affordable housing managers must take to remain compliant with both sets of rules. Most individuals living in the U.S. read, write, speak, and understand English. There are many, however, for whom English is NOT their primary language. For this reason, affordable housing operators with federal assistance are required to comply with the federal government's Limited English Proficiency (LEP) requirements. All programs and operations of entities that receive financial assistance from the federal government, including but not limited to state agencies, local agencies, and for-profit and non-profit entities, must comply with the LEP requirements. Sub-recipients must also comply (i.e. when federal funds are passed through a recipient to a sub-recipient). As an example, Federal Housing Administration (FHA) insurance is not considered federal financial assistance, and participants in that program are not required to comply with Title VI's LEP obligations unless they receive federal financial assistance as well (such as project-based Section 8). This section of the webinar will assist affordable housing owners and managers in their understanding of LEP requirements and will cover the following areas: (1) Ensuring plan compliance; (2) the "four-factor" analysis; (3) translation "safe harbors"; (4) monitoring and updating the Plan; and (5) issues relating to reasonableness. The training will also outline exactly which programs and properties are - and are not- subject to LEP requirements. Section 504 of the Rehabilitation Act of 1973 is usually just referred to as "Section 504." Section 504 provides rights to persons with disabilities in federally funded programs and activities, including HUD and RD programs. Specifically, Section 504 states, "No otherwise qualified individual with a disability in the United States ... shall, solely by reason of her or his disability, be excluded from participation in, be denied the benefits of, or be subjected to discrimination under any program, service or activity receiving federal financial assistance or under any program or activity conducted by any Executive agency or by the United States Postal Service." Section 504 is not the only law prohibiting disability discrimination in programs receiving HUD and RD funds or financial assistance. Other federal laws that require nondiscrimination based on disability include the Fair Housing Act, the Americans with Disabilities Act, and the Architectural Barriers Act. However, this training focuses on Section 504 requirements, including (1) the properties that are subject to Section 504, (2) what is meant by the term "integrated setting," (3) what is meant by program accessibility, (4) who covers costs relating to Section 504 compliance, (5) the definition of an "accessible unit," (6) what physical accessibility features are required, and (7) Section 504 applicability to rehab deals. At the end of this session, participants will understand the requirements of both LEP and Section 504 and will be better able to serve the intended beneficiaries of these two laws and protect the interests of property owners. These sessions are part of a year-long collaboration between A. J. Johnson and MidAtlantic AHMA designed to provide affordable housing professionals with the knowledge needed to manage the complex requirements of the various agencies overseeing these programs effectively. Persons interested in any (or all) training sessions may register by visiting either www.ajjcs.net or https://www.mid-atlanticahma.org.

HUD HOTMA Rules Clarify and Change the Treatment of Assets

Introduction HUD Notice H 2013-10 expands upon the Final Rule for implementing the Housing Opportunity Through Modernization Act (HOTMA). This final rule makes some changes to the way managers of HUD-assisted housing will deal with assets on HUD-assisted properties. Since LIHTC properties are required to follow HUD rules relative to the determination of income, these changes also apply to tax credit properties. Net family assets are defined as the net cash value of all assets owned by the family, after deducting reasonable costs that would be incurred in disposing of real property, savings, stocks, bonds, and other forms of investment, except as excluded by regulation. Assets with Negative Equity While assets with negative equity are still considered assets, the cash value of real property or other assets with negative equity are considered to have zero value for purposes of calculating net family assets. Negative numbers are never used in the calculation of asset value. Assets Owned by a Business Entity If a business entity (e.g., LLC or LP) owns an asset, then the family s asset is their ownership stake in the business. The actual assets of the business are not counted as family assets. However, if the family holds the assets in their name (e.g., they own 1/3 of a restaurant) rather than in the name of the business entity, then the percentage value of the asset owned by the family is what is counted toward the net family assets (e.g., one-third of the value of the restaurant). Jointly Owned Assets For assets jointly owned by the family and one or more individuals outside of the assisted family, owners must include the total value of the asset in the determination of net family assets, unless the asset is otherwise excluded, or unless the assisted family can demonstrate that the asset is inaccessible to them, or that they cannot dispose of any portion of the asset without the consent of another owner who refuses to comply. If the family demonstrates that they can only access a portion of an asset, then only that portion s value shall be included in the calculation of net family assets. Exclusions from Assets Required exclusions from net family assets include the following: The value of necessary items of personal property; The value of all non-necessary items of personal property with a total combined value of $50,000 or less, annually adjusted for inflation; The value of any retirement plan recognized by the IRS, including IRAs, employer retirement plans, and retirement plans for self-employed individuals; The value of real property that the family does not have the effective legal authority to sell. Examples of this include (1) co-ownership situations {including situations where one owner is a victim of domestic violence} where one party cannot unilaterally sell the property, (2) property that is tied up in litigation, and (3) inherited property in dispute; The value of any education savings account under Section 530 of the IRC 1986, the value of any qualified tuition program under Section 529 of the IRC, and the contributions to and distributions from any Achieving a Better Life Experience (ABLE) account authorized under Section 529A of the IRC; The value of any "baby bond" account created, authorized, or funded by the federal, state, or local government (money held in trust by the government for children until they are adults); Interests in Indian trust land; Equity in a manufactured home where the family receives assistance under the Housing Choice Voucher Program; Equity in a property under the Homeownership Option where the family receives assistance under the Housing Choice Voucher Program; Family Self-Sufficiency accounts; Federal or state tax refunds or refundable tax credits for 12 months after receipt by the family; The full amount of assets held in an irrevocable trust; and The full amount of assets held in a revocable trust where a member of the family is the beneficiary, but the grantor and trustee of the trust is not a member of the family. Necessary & Non-Necessary Personal Property Necessary personal property is excluded from assets. Non-necessary personal property with a combined value of more than $50,000 (adjusted by inflation) is an asset. When the combined value of non-necessary personal property does not exceed $50,000, it is excluded from assets. All assets are categorized as either real property (e.g., land, a home) or personal property. Personal property includes tangible items, like boats, as well as intangible items, like bank accounts. For example, a family could have non-necessary personal property with a combined value that does not exceed $50,000 but also own real property such as a parcel of land. While the non-necessary personal property would be excluded from assets, the real property would be included - regardless of its value, unless it meets a specific exclusion. Necessary personal property are items essential to the family for the maintenance, use, and occupancy of the premises as a home; or they are necessary for employment, education, or health and wellness. Necessary personal property includes more than mere items that are indispensable to the bare existence of the family. It may include personal effects (such as items that are ordinarily worn or used by the individual), items that are convenient or useful to a reasonable existence, and items that support and facilitate daily life within the family s home. Necessary personal property does not include bank accounts, other financial investments, or luxury items. Determining what is a necessary item of personal property is very fact-specific and will require a case-by-case analysis. Following are examples of necessary and non-necessary personal property (not an exhaustive list). Necessary Personal Property Vehicles used for personal or business transportation; Furniture and appliances; Common electronics such as TV, radio, DVD players, gaming systems; Clothing; Personal effects that are not luxury items (e.g., toys and books); Wedding & Engagement rings; Jewelry used in religious or cultural celebrations or ceremonies; Medical equipment & supplies; Musical instruments used by the family; Personal computers, tablets, phones, and related equipment; Educational materials; and Exercise Equipment Non-Necessary Personal Property RVs not needed for day-to-day transportation, including motor homes, campers, and all-terrain vehicles; Bank accounts or other financial investments (e.g., checking/savings account, stocks/bonds); Recreational boats or watercraft; Expensive jewelry without cultural or religious significance or which has no family significance; Collectibles, such as coins or stamps; Equipment/machinery that is not part of an active business; and Items such as gems, precious metals, antique cars, artwork, etc. Trusts Any trust (both revocable and non-revocable) that is not under the control of the family is excluded from assets. For a revocable trust to be excluded from net family assets, no family or household member may be the account s trustee. A revocable trust that is under the control of the family or household (e.g., the grantor is a member of the assisted family or household) is included in net family assets, and, therefore, income earned on the trust is included in the family s income from assets. This also means that PHAs/MFH Owners will calculate imputed income on the revocable trust if net family assets are more than $50,000, as adjusted by inflation, and actual income from the trust cannot be calculated (e.g. if the trust is comprised of farmland that is not in use). Actual Income from a Trust If the Owner determines that a revocable trust is included in the calculation of net family assets, then the actual income earned by the revocable trust is also included in the family s income. Where an irrevocable trust is excluded from net family assets, the Owner must not consider actual income earned by the trust (e.g., interest earned, rental income if the property is held in the trust) for so long as the income from the trust is not distributed. Trust Distributions & Annual Income A revocable trust is considered part of net family assets: If the value of the trust is considered part of the family s net assets, then distributions from the trust are not considered income to the family. Revocable or irrevocable trust not considered part of net family assets: If the value of the trust is not considered part of the family s net assets, then distributions from the trust are treated as follows: (1) All distributions from the trust s principal are excluded from income. (2) Distributions of income earned by the trust (i.e., interest, dividends, realized gains, or other earnings on the trust s principal), are included as income unless the distribution is used to pay for the health and medical expenses for a minor. Actual & Imputed Income from Assets The actual income from assets is always included in a family s annual income, regardless of the total value of net family assets or whether the asset itself is included or excluded from net family assets unless that income is specifically excluded. Income or returns from assets are generally considered to be interest, dividend payments, and other actual income earned on the asset, and not the increase in market value of the asset. Imputed income from assets is no longer determined based on the greater of actual or imputed income from the assets. Instead, imputed asset income must be calculated for specific assets when three conditions are met: (1) The value of net family assets exceeds $50,000 (as adjusted for inflation); (2) The specific asset is included in net family assets; and (3) Actual asset income cannot be calculated for the specific asset. Imputed asset income is calculated by multiplying the net cash value of the asset, after deducting reasonable costs that would be incurred in disposing of the asset, by the HUD-published passbook rate. If the actual income from assets can be computed for some assets but not all assets, then PHAs/MFH Owners must add up the actual income from the assets, where actual income can be calculated, then calculate the imputed income for the assets where actual income could not be calculated. After the PHA/MFH owner has calculated both the actual income and imputed income, the housing provider must combine both amounts to account for income on net family assets with a combined value of over $50,000. When the family s net family assets do not exceed $50,000 (as adjusted for inflation), imputed income is not calculated. Imputed asset income is never calculated on assets that are excluded from net family assets. When actual income for an asset which can equal $0 can be calculated, imputed income is not calculated for that asset. Owners should not conflate an asset with an actual return of $0 with an asset for which an actual return cannot be computed, such as could be the case for some non-financial assets that are items of nonnecessary personal property. If the asset is a financial asset and there is no income generated (for example, a bank account with a 0 percent interest rate or a stock that does not issue cash dividends), then the asset generates zero actual asset income, and imputed income is not calculated. When a stock issues dividends in some years but not others (e.g., due to market performance), the dividend is counted as the actual return when it is issued, and when no dividend is issued, the actual return is $0. When the stock never issues dividends, the actual return is consistently $0. Self-Certification of Net Family Assets Equal to or Less Than $50,000 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 and/or reexamination. Owners are not 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. Owners may follow a pattern of relying on self-certification for two years in a row and fully verifying assets in the third year. The family s self-certification must state the amount of income the family anticipates receiving from such assets. The actual income declared by the family must be included in the family s income unless specifically excluded from income under HUD regulations. Owners must clarify, during the self-certification process, which assets are included/excluded from net family assets. Owners may combine the self-certification of net family assets and questions inquiring about a family s present ownership interest in any real property into one form. Bottom Line Owners and managers of properties that are subject to HOTMA should familiarize themselves with these new asset rules and ensure they are in place. HUD properties will be required to implement the rules when they put the HOTMA changes into effect in 2024. LIHTC properties should consult the appropriate HFA to determine when the new rules must be followed.

A. J. Johnson Partnering with Mid-Atlantic AHMA for March 2024 Affordable Housing Training

During March 2024, A. J. Johnson will be partnering with the MidAtlantic Affordable Housing Management Association for five live webinar training sessions intended for real estate professionals, particularly those in the affordable multifamily housing field. The following sessions will be presented: March 12: Intermediate LIHTC Compliance - Designed for more experienced managers, supervisory personnel, investment asset managers, and compliance specialists, this program expands on the information covered in the Basics of Tax Credit Site Management. A more in-depth discussion of income verification issues is included as well as a discussion of minimum set-aside issues (including the Average Income Minimum Set-Aside), optional fees, and use of common areas. The Available Unit Rule is covered in great detail, as are the requirements for units occupied by students. Attendees will also learn the requirements relating to setting rents at a tax-credit property. This course includes the recent HOTMA changes and contains some practice problems but is more discussion-oriented than the Basic course. A calculator is required for this course. March 19: Two separate webinars will be offered on this date. An Overview of the HOME Program with HOTMA Changes will be offered in the morning. This three-hour course outlines the basic requirements of the HOME Investment Partnership Program, with particular emphasis on combining HOME funds with the federal Low-Income Housing Tax Credit. The training provides an overview of HOME Program regulations, including rent rules, unit designations, income restrictions, and recertification requirements. The course also includes the recent HOTMA changes that impact the HOME program.  The course concludes with a detailed discussion of combining HOME and tax credits, focusing on occupancy requirements and rents, tenant eligibility differences, handling over-income residents, and monitoring requirements. March 19: The afternoon session will be Management of Rural Development Section 515 Layered Deals. The development of affordable rental housing is a complex undertaking that often requires a combination of programs to succeed. While the foundation of most affordable rental housing today is the Low-Income Housing Tax Credit Program, the tax credits alone are often not enough to ensure project feasibility. Successful properties often must "layer" programs to work. One such program is the Rural Development Section 515 program. When combining other programs with a Section 515 project, management must understand the rules of all, and be able to implement them at the project level. This three-hour session will cover some of the most common pitfalls when managing Section 515 layered properties and guide the knowledge required to be successful. Questions and discussions will be encouraged, and attendees will be able to ask specific questions about the issues facing their properties. March 20: Advanced LIHTC Compliance - This full-day training is intended for senior management staff, developers, corporate finance officers, and others involved in decision-making concerning how LIHTC deals are structured. This training covers complex issues such as eligible and qualified basis, applicable fraction, credit calculation (including first-year calculation), placed-in-service issues, rehab projects, tax-exempt bonds, projects with HOME funds, Next Available Unit Rule, employee units, mixed-income properties, the Average Income Minimum Set-Aside, vacant unit rule, and dealing effectively with State Agencies. March 21: Preparing Affordable Housing Properties for Agency Required Physical Inspections - Agency inspections of affordable housing properties are required for all affordable housing programs, and failure to meet the required inspection standards can result in significant financial and administrative penalties for property owners. This three-hour training focuses on how owners and managers may prepare for such inspections, with a concentration on State Housing Finance Agency inspections for the LIHTC program. Specific training areas include (1) a complete discussion of the most serious violations, including health & safety; (2) how vacant units are addressed during inspections; (3) when violations will be reported to the IRS; (4) the 20 most common deficiencies; (5) how to prepare a property for an inspection; (6) strategies for successful inspections; and (7) a review of the most important NSPIRE inspection requirements. As part of the training, attendees will have a blueprint they can use to prepare their properties for agency-required physical inspections - regardless of the program under which they operate. These sessions are part of the year-long collaboration between A. J. Johnson and MidAtlantic AHMA that is designed to provide affordable housing professionals with the knowledge needed to effectively manage the complex requirements of the various agencies overseeing these programs. Persons interested in any (or all) of these training sessions may register by visiting either www.ajjcs.net or https://www.mid-atlanticahma.org.

HUD Issues Clarifying HOTMA Guidance

Last week, the U.S. Department of Housing and Urban Development issued more detailed guidelines to assist in the enactment of the Housing Opportunity Through Modernization Act (HOTMA) of 2016. This Act aims to simplify procedures and lessen the responsibilities of public housing authorities (PHAs), private affordable housing owners, and residents. The recent Notice H 2023-10 introduces a range of technical adjustments and clarifications, sets the commencement date as January 1, 2024, and outlines the compliance timeline and necessary measures for owners of affordable multifamily rental properties, which include those financed by the low-income housing tax credit (LIHTC) equity. Key clarifications from the Notice include: Public housing authorities are required to revise their Annual Plan and Moving to Work (MTW) Plans. For Annual Recertification of income, owners may rely on verification from an interim reexamination, provided there have been no changes to the annual income since that interim assessment. The new deduction for elderly/disabled families, effective January 1, 2024, will be applied by PHAs and Multifamily Housing (MFH) Owners at the upcoming annual or interim reexamination, whichever occurs first, after the new deduction has been adopted by the PHA/MFH Owner. The phased-in relief will commence concurrently. Any tax refund or credit must be deducted from the total net assets of a family, irrespective of the deposit location. Owners are not required to apply the new passbook rate until they have updated their software systems. It has been clarified that workers compensation should always be excluded from annual income calculations, no matter the duration or frequency of the payments. Owners and managers of properties governed by the HOTMA regulations are advised to examine the revised notice to determine its relevance to their properties.

Legislation Introduced for Middle Income Tax Credit

In December 2023, Congress considered a new approach to America's housing affordability crisis with the introduction of the "Workforce Housing Tax Credit Act" in both the House and Senate. This proposed bill aims to establish a Middle-Income Housing Tax Credit, focusing on providing affordable housing options for middle-class families and young professionals who are beginning their careers. The United States is currently grappling with a housing affordability crisis that has transformed the landscape of American renters. With a decline in homeownership and a rise in rental demand, there is a pressing need for housing that bridges the gap between low-income options and high-end residences. This 'missing middle' represents a vast segment of the population, including families and individuals who earn too much to qualify for low-income housing but are priced out of the expensive housing market. The Workforce Housing Tax Credit (WHTC) aims to supplement the highly successful Low-Income Housing Tax Credit (LIHTC) program. The WHTC proposes additional tax incentives that would encourage the development of housing for tenants earning 60% to 100% of the area median income (AMI). These credits could also be transferred to the LIHTC program to benefit tenants generally earning below 60% of AMI. A key feature of the WHTC is its strategic utilization of state and local housing authorities' expertise in determining the most suitable projects for their communities. It also emphasizes the importance of public-private partnerships to leverage private investment in the housing sector. States are afforded significant flexibility in resource allocation, including the ability to transfer middle-income housing allocations to LIHTC and the combination of credits within housing projects. Notable aspects of the Workforce Housing Tax Credit Act include: State housing finance agencies will allocate tax credits to developers through a competitive process, akin to the LIHTC program. These tax credits are distributed over 15 years, accompanied by a 15-year compliance timeframe and a 30-year extended commitment. The allocation of tax credits to states is population-based, with the 2024 allocation set at $1 per capita and a minimum of $1.5 million for smaller states. An extra 5% of the allocation is reserved for middle-income housing in rural locations. For new construction, the credit would cover 50% of the construction costs over the life of the credit, while rehabilitated and bond-financed buildings would receive a credit equating to 20% of the construction costs. Additional credits are available for developments in areas that are challenging to develop, as identified by HUD. To be eligible for the credit, a minimum of 60% of a building s units must house individuals earning an AMI of 100% or less, with rent restrictions capped at 30% of the applicable income level. These affordability conditions are maintained for up to 15 years following the compliance period, totaling a 30-year affordability duration. The WHTC is designed to work in tandem with the LIHTC to bolster low-income housing. States can adjust allocations to address specific needs and may transfer any portion of their middle-income allocation to LIHTC anytime during the year. The WHTC can also enhance the financial viability of affordable housing projects by combining LIHTC and middle-income credits, provided that at least 20% of units cater to the middle-income bracket. The enactment of the WHTC is yet to be determined and has seen resistance from some low-income housing advocates who argue for the expansion of the LIHTC program instead. However, developers and managers of affordable housing recognize the necessity of a workforce housing initiative. If passed, the WHTC could significantly alleviate the current housing affordability issues. The Workforce Housing Tax Credit Act intends to build on the achievements of LIHTC and presents a critical solution that Congress could adopt to address the ongoing housing affordability dilemma. As the legislation progresses, the appropriate committees in both the House and Senate will deliberate over the bills. At present, no specific timeline has been established for the passage or concrete legislative action regarding the Act.

Verification of Value and Determination of Income from Real Estate Investments

Virtually all affordable housing programs, including those using assistance from the Department of Housing & Urban Development (HUD) and the Rural Housing Service (RHS), as well as Low-Income Housing Tax Credit (LIHTC) projects, must determine actual or potential income from assets when projecting the income of applicants and residents. The rules governing how to do this are contained in HUD Handbook 4350.3. One of the more complex assets to deal with when projecting income is real estate. In many - if not most cases - real estate owned by a member of an assisted family will be considered an asset. In this article, I will outline the circumstances under which real estate is not an asset and will explain how to determine income from real estate when it is an asset. When is real estate not an asset to a family? The decision as to whether to treat real estate as an asset depends on family circumstances. The net income derived from an applicant s real estate holdings will either be considered business income or income from an asset. If the resident s main business is real estate, income from the rental of real estate is considered business income, and since the real estate is an asset of an active business, it should not be considered an asset to the household. To consider real estate as the primary business of the individual, income from real estate should generate most of the income for the person. While relatively rare in affordable housing, the presence of residents whose main business is real estate is not unheard of. And, in such cases, the net income from the business will be counted as household income. The best documentation of such business income is IRS Schedule E (Form 1040). This form is used to report income (or loss) from rental real estate. When is the real estate an asset to the family? If real estate is not the main business of an applicant or household, then the real estate is considered an asset. If the property is rented, the net income from rent is considered asset income. To determine the value of the property, subtract amounts owed on the property, as well as a reasonable cost of sale, from its market value. For example, assume an applicant owns a single-family home that is rented. The market value of the home is $250,000, and the applicant owes $105,000 on the mortgage. Assume a cost of sale of $20,000. Cash value is determined by subtracting the cost of sale from the market value, and then subtracting the balance on the mortgage. So, the calculation is $250,000 minus $20,000 minus $105,000 = $125,000 cash value. In order to determine income from the asset, the rental income must be verified. Once the gross rent is verified, you may deduct any verifiable operating expenses, such as mortgage interest payments, taxes, insurance, and maintenance. The resulting net income is considered asset income. Verification of Cash Value To determine cash value, the fair market value must first be determined. The fair market value (FMV) is the amount that another person would pay to acquire the property in an open-market transaction. There are several ways to verify market value, including (1) tax assessments {in some states}; (2) online real estate listing; (3) an estimate from a qualified broker; or (4) a bona fide sales contract. Once the market value has been determined, a verification of any outstanding mortgage balance is required. Then, the process outlined above for determining cash value is followed. Verification of Rental Income A variety of documents may be used to verify rental income. These include a current lease, recent rent checks, or the latest IRS Schedule E (Supplemental Income and Loss). HOTMA and Real Estate HUD s Final Rule relating to the implementation of The Housing Opportunity Through Modernization Act (HOTMA) is now in effect. The final rule did not change how the cash value and income from real estate is determined. But HOTMA did establish new household asset limitations preventing households that own real property "suitable for occupancy," or assets over $100,000, from receiving HUD rental assistance. However, housing providers may establish exceptions and have a great deal of discretion in enforcing the new limits on current residents. It is also important to note that these limitations apply to HUD programs only - not RHS or LIHTC.

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