Follow Six Dos & Don’ts When Counting Household Assets

When calculating household income at initial certifications and at annual recertifications, if you have a mixed-income site, you must properly count the household’s assets. But this can be tricky if you’re not familiar with HUD’s rules.

If you’re not sure how to count assets correctly, you might reject an eligible household because you mistakenly believe that its members earn too much income. Or you may incorrectly determine that a household is over-income at its annual recertification, prompting you to follow the next available unit rule unnecessarily.

To help you avoid these problems, we’ve put together six Dos and Don’ts. Follow them each time you certify and recertify low-income households at your tax credit site.

Don’t Assume All Items of Value Are Assets

Not all items of value are considered assets for income purposes, so don’t assume they are. It’s dangerous to assume that items are assets based on ordinary or common-sense definitions. Instead, when certifying and recertifying households, you must consider only those items that HUD says are assets. To do this, consult Exhibit 5-2 of the HUD Handbook, which lists what items are and aren’t assets.

Generally, HUD considers an item to be an asset if it has value and may be turned into cash—whether or not it produces interest or other income (for example, a savings account). But, for instance, items that are a household member’s necessary personal property aren’t considered assets—even though they have value. Personal property commonly includes items such as a household member’s clothing, furniture, cars, coin collections, wedding ring, or other jewelry (as long as they’re not held for investment purposes). Also, note that wheelchairs or other specially equipped vehicles that a household member owns and uses to accommodate a disability mustn’t be considered assets [Handbook 4350.3, exh. 5-2(B)(1)].

Count Only Assets that Household Members Own

The Handbook requires you to count only assets that households “effectively own.” So when household members report to you about their assets, don’t assume that they actually own these assets. Even if an asset is held in a household member’s name, it’s not considered effectively owned by that member if:

• The asset and any income it earns accrue to the benefit of a person whose income isn’t counted as part of the household’s income; and
• That person is responsible for income taxes on income generated by the asset [Handbook 4350.3, par. 5-7(D)(2); exh. 5-2(B)(6)].

So, for example, suppose an asset is held in a household member’s name under a power of attorney because a person whose income isn’t counted with the household’s isn’t competent to manage the asset. That asset wouldn’t be considered effectively owned by the household member. The same is true of an asset that a household member owns in a joint account with such a person solely so the household member can help the other person get access to the money in an emergency.

Also, a household member doesn’t own an asset for income purposes if she doesn’t have access to it and gets no income from it. The Handbook gives as an example the case of a battered spouse who owns a house with her husband but can’t convert the house to cash and gets no income from it [Handbook 4350.3, exh. 5-2(B)(7)].

If you determine that a household member effectively owns an asset, but that the household member owns it jointly with a person whose income isn’t counted with the household’s, you’ll need to count only part of the asset. In this case, you must prorate the amount of the asset based on the percentage of the household member’s ownership [Handbook 4350.3, par. 5-7(D)(1)].

Don’t Count Lump-Sum Payments as Assets if Spent on Non-Assets

If a household gets a lump-sum payment and then spends it on something that’s not considered an asset (for instance, a family vacation or school), you mustn’t count that item as an asset [Handbook 4350.3, par. 5-7(G)(3)(b)]. But if households put a lump-sum payment into a checking or savings account, a CD, stocks, or bonds, those items are assets and you would treat them that way [Handbook 4350.3, par. 5-7(G)(3)(a)]. This makes it important to check what households have done with lump-sum payments they’ve received. So, if a household uses a lump-sum payment to buy an asset, you’ll need to count the asset when calculating income, but you would disregard the lump-sum payment.

Ask Household Why Asset Disposed of for Less than Fair Market Value

It’s important to ask prospective and current household members why they’ve disposed of assets for less than fair market value. Generally, if a household has disposed of an asset for less than fair market value in the past two years, you must count it as an asset at the household’s initial certification or annual recertification [HUD Handbook 4350.3, par. 5-7(G)(8)]. This rule is meant to prevent households from shrinking their assets to become eligible for low-income housing. But if you learn that a household disposed of an asset for less than fair market value because of foreclosure, bankruptcy, divorce, or separation, then you mustn’t count the asset [Handbook 4350.3, par. 5-7(G)(8)(d)].

Even if you don’t need to count an asset, you must always get a signed written statement from households saying whether any members have disposed of assets for less than fair market value during the past two years [Handbook 4350.3, par. 5-7(G)(8)(f)]. For an asset disposition form you can use, see “How to Handle Assets Disposed of for Less than Fair Market Value,” on our website.

Don’t Count Amount of Term Life Insurance

If you learn that a household member has term life insurance, don’t count the amount of the insurance as an asset [Handbook 4350.3, exh. 5-2(A)(7), (B)(3)]. You would count whole or universal life insurance. But unlike those types of insurance, term life insurance offers no cash or surrender value before a household member’s death.

Count Accessible Retirement Account Balances Unless Periodic Payments Are Made

If a household member has an IRA, Keogh, or other retirement account, you must count the account balance as an asset as long as this balance is accessible to the household member, unless the benefits are being received through periodic payments [HUD Handbook 4350.3, par. 5-7 (G)(4)(b)]. Likewise, you would include in annual income any retirement benefits received through periodic payments and not count any remaining amounts in the account as an asset [HUD Handbook 4350.3, par. 5-7 (G)(4)(d)].

If no periodic payments from the retirement accounts are being made, you would count the balance accessible to the household member as an asset even if the household member would owe a penalty to withdraw any part of the balance (if, say, the member is employed or too young) [Handbook 4350.3, par. 5-7(G)(4)].

But if part of a working household member’s retirement account balance can’t be withdrawn even with a penalty and is accessible to the household member only once she retires, then you mustn’t count this part of the balance as an asset.