Top Issues When Renting to Military Households
If your tax credit site is located near a U.S. military base, your current residents or applicants may include military personnel and their families. Because of the unique nature of military service—and the likelihood of service members being deployed from their usual duty station for extended periods of time—both HUD and the IRS have addressed the special circumstances related to military households in the most recent revisions of the HUD Handbook and 8823 Guide. We turned to tax credit expert Karen Graham for a rundown of the key issues to keep in mind when renting to members of the Armed Forces.
When to Include Income of Residents on Active Duty
If a household member on active military duty is deployed out of the area for a period of time, and therefore, temporarily not living in the unit, should that individual's military pay be counted as part of the total household income?
According to HUD, a temporarily absent individual on active military duty must be removed from the family and his or her income must not be included in the computation of household income, unless that person is the head of the household, spouse, or co-head, or the spouse or a dependent of the person on active military duty resides in the unit.
What Type of Pay to Include
Military pay can be complicated, with more than 70 different types of pay and allowances. To compute income, the IRS defines military pay as including (but not limited to) base and longevity pay, proficiency pay, sea and foreign duty pay, hazardous duty pay, and subsistence and clothing allowances. Hostile fire pay, however, is excluded.
The Military Pay Verification form that you submit to the applicant's or resident's personnel officer includes not only the individual's total monthly pay, but also breaks out the various pay categories. But “when obtaining a verification of military pay is impossible or impractical, you can use a Leave and Earnings Statement (LES), which is similar to a pay stub for employment, to determine the different types of pay that a service member receives,” says Graham.
EDITOR'S NOTE: The 8823 Guide states that hazardous duty pay is included in household income, while hostile fire pay (also known as imminent danger pay) is not. What is the difference? Hostile fire or imminent danger is considered “special pay” for serving in a combat zone. It is based on the location where the service member is deployed, and does not depend on the service member's rank or job. Hazardous duty is an “incentive pay” based on a job or unit status. It is extra pay for the increased danger associated with the job and may differ depending on the individual's rank.
Exceptions for Basic Military Housing Allowances
Military benefits also include basic housing allowances (BAH) for service members who choose to live off base. While the amount differs depending on location and the service member's rank, the BAH puts a good percentage of military personnel over income, says Graham.
Military households living in certain locations have benefited from provisions in the Housing and Economic Recovery Act of 2008 (HERA), which was signed into law on July 30, 2008. HERA excluded BAH from a household's annual income for low-income buildings located in a county, or an adjacent county, with a qualified military installation with a minimum of 1,000 military personnel. Currently, there are only nine qualified U.S. installations where service members can apply for tax credit housing without including the BAH in their annual income. As a result, only about 10 percent of military families qualify for tax credit units.
It's important to note that the HERA exclusions end on Dec. 31, 2012, Graham points out. However, legislation introduced by U.S. Senator Charles E. Schumer may change that. If passed, the Military Families Affordable Homes Act (H.R. 3641) would extend the 2008 exemption to soldiers, sailors, airmen, and Marines stationed at any U.S. military installation, allowing thousands of military service families across the country access to the low-income housing tax credit (LIHTC) program.
HUD Encourages Owners to Be Lenient
HUD encourages owners and managers to “be as lenient as possible” to accommodate the unique circumstances faced by military households, which are often beyond their control. For instance, when a household member is called to active duty or deployed to a location away from his or her family, HUD suggests owners and managers support the remaining household members through the following types of actions:
Allow a guardian to move into the assisted unit on a temporary basis to provide care for any dependents the military person leaves in the unit. Income of the guardian temporarily living in the unit for this purpose is not counted as income.
Allow a resident living in an assisted unit to provide care for any dependents of persons called to active duty in the Armed Forces on a temporary basis, as long as the head and/or co-head of the household continues to serve in active duty. Income of the child (such as SSI benefits and military benefits) is not counted as income of the person providing the care.
Give consideration for any case involving delayed payment of household rent. Determine whether it is appropriate to accept a late payment.
Allow the assistance payment and the lease to remain in effect for a reasonable period of time (depending on the length of deployment) beyond that required by the Soldiers' and Sailors' Civil Relief Act of 1940 (50 U.S.C. §§501-591), even though the adult members of the military family are temporarily absent from the assisted unit.
HUD points out that the support owners and managers offer military households is not limited to these actions. For instance, another area for leniency is obtaining the absent household member's signature on income certifications or other documents. The IRS states that, in circumstances where obtaining the signatures is impractical, such as the household member being temporarily overseas, the owner should document the reason for the delay in the household file and secure the signature as soon as possible upon the resident's return.
PRACTICAL POINTER: You can avoid hassles with obtaining signatures and late payments by recommending to households with active-duty military personnel that service members grant power of attorney to a spouse or household member who can act on the service member's behalf if he or she is deployed to another location, Graham says.
Karen A. Graham, CPM, HCCP: President, Karen A. Graham Consulting, LLC; (513) 755-7009; firstname.lastname@example.org.