HUD Handbook and LIHTC: Discrepancies Reveal Imperfect Fit
When determining an applicant's eligibility, tax credit managers often can be thrown by HUD Section 8 regulations for income and asset identification that seem to conflict with certain provisions in the tax credit regulations. Jo Ikelheimer, research & development consultant and compliance trainer for the National Center for Housing Management (NCHM), points out these discrepancies in her Tax Credit Specialist training course, as well as in her ongoing article series in the Compliance Corner blog on the NCHM Web site. We've asked Ikelheimer to highlight a few of the commonly confusing requirements from Chapter 5 of HUD Handbook 4350.3 that don't quite mesh with tax credit regulations.
Methods for Projecting and Calculating Income
Paragraph 5-5 of the Handbook, which lays out the approaches for determining annual income, instructs managers to calculate projected annual income by annualizing current income. But if the household's income changes later in the year, the Handbook suggests managers conduct an interim recertification.
“Tax credit regulations do not require interim recertifications,” Ikelheimer says. “If there are going to be looming changes that are known at the time of certification, you really have to go ahead and account for those changes upfront rather than waiting until they happen. Everything has to be accounted for on an annual or 12-month basis.”
She adds that the elimination of the requirement for annual recertifications of household income for residents of 100 percent tax credit sites makes it even more critical to account for all income upfront for the initial year of certification to make sure that the household truly qualifies. “Are they qualified based on their income when they move into the unit? That is really the most important time frame,” she says.
PRACTICAL POINTER: In situations where the resident's income is sporadic or seasonal (Paragraph 5-5C), HUD directs managers to use reasonable judgment to calculate income. When using your “best guess,” Ikelheimer stresses consistency. “Try to be as consistent as possible in those types of situations. What you do for one household, you need to try your best to do for all households.”
Dependent Full-Time Students Age 18 and Over
When calculating the income of adults and dependents within a household, Paragraph 5-63d of the Handbook instructs managers to count only the first $480 of earned income for full-time students age 18 or older. With HUD programs, like Section 8, households are eligible for $480 in allowance for every dependent, says Ikelheimer, which cancels out the $480 counted for the student's annual income. “There is no provision for allowances at LIHTC sites,” she explains. “You count it, but it doesn't have the same applicability, because the household cannot deduct it from their annual income.”
Permanently Confined Family Members
HUD program allowances or deductions that do not exist for tax credit purposes also come into play when deciding whether to include the income of a family member who has been permanently confined to a nursing home or hospital [Paragraph 5-6C]. If the household chooses to include the individual as a family member and count his income, under HUD, the household may benefit from allowable medical deductions to lower their adjusted income, which translates into less rent for that household, says Ikelheimer.
The allowances do not apply for the LIHTC program. In fact, she adds, it could pose a problem during initial certification at a tax credit site. Including a permanently confined individual's income with the family's annual income could possibly put the household over the income limit and cause them not to qualify for eligibility.
Student Financial Assistance
HUD's provision in Paragraph 5-6D of the Handbook states that all student financial assistance in excess of tuition should be included in annual income, except if the student is over the age of 23 with dependent children or is living with his or her parents who are receiving Section 8 assistance.
That provision often throws tax credit managers for a loop, Ikelheimer says. “They think that, if they don't have Section 8 subsidy layering at their tax credit site, it does not apply,” she says. “But in fact, the tax credit regulations specifically defer to the Section 8 regulations as the model to use for income and asset determination.”
Another common confusion is caused by the exception that the student must be living with his parents in a Section 8 unit. Not so, says Ikelheimer. “Students don't have to be living with their parents in a Section 8 unit; just living with their parents would exclude them from having to use that formula for the LIHTC program.”
Search Our Web Site by Key Words: HUD Handbook; projecting income; full-time students; permanently confined family members; student financial assistance