The U.S. Department of Housing and Urban Development (HUD) announced a change last month to the method for calculating income generated by assets. As with other income, any income generated by assets is included when determining annual household income for Low Income Housing Tax Credit (LIHTC) housing.
The rule only applies if the total cash value of all assets for a household is more than $5,000.
For example, a tenant may own land that does not generate income, but we need a way to “impute” or assign value to the land since it is an asset. The IRS requires this type of income to be calculated based on the HUD “Passbook Rate” applied to the cash value of assets greater than $5,000.
The change that HUD issued last month modifies the Passbook Rate from 2%. It is now 0.06% and the change will become effective on Feb. 1, 2015.
What does this mean for you?
Although we do not see many households with assets over $5,000, it is important to know about the change so when required, we can calculate annual household income correctly.
For the LIHTC program, if households assets are above $5,000, the rule is we must third-party verify the account(s) and count the higher of either the imputed income (total household assets x 0.06%, the new Passbook Rate) or the actual interest rate obtained in the verification(s).
For example, if Joe has a checking account with a $5,500 cash value, we must third-party verify the account. The bank sends back the verification and says the interest rate for the account is .01%. When calculating the annual income from the checking account, we would need to use the new Passbook Rate of .06% since it is higher than the verified interest rate of .01%.
Also, for those households whose assets have a cash value of greater than $5,000, it is encouraged that we perform a rent adjustment on Feb. 1, 2015, as the new lower Passbook Rate might decrease households’ annual income from assets and therefore would decrease their tenant-paid rent.
In response to HUD’s change, your state allocating agency will be updating some of its forms to reflect the new Passbook Rate. The forms may include Tenant Income Certification and Under $5,000 Asset Certification, among others. Our asset management & compliance team will be watching for the updated forms to be released and will ensure you receive a copy on or before the Feb. 1, 2015, effective date.
As always if you have questions about this information or need further assistance, please feel free to call us at 816-994-8970 or email us at assetmanagement@travois.com.