AJJCS
Products News Help
Client Sign In

HOTMA Changes to Deductions and Expenses for HUD Properties

person A.J. Johnson today 11/11/2023

Introduction

The U.S. Department of Housing and Urban Development (HUD) has released Notice H 2013-10, which expands upon the Final Rule for implementing the Housing Opportunity Through Modernization Act (HOTMA). The publication of this guidance in September 2023 outlined a number of changes to the rules relating to HUD-permitted deductions and expenses.

Owners of HUD-assisted projects that determine rent based on adjusted income must consider mandatory deductions when determining a family’s annual adjusted income. Public Housing Agencies (PHAs) may also consider additional deductions to a family’s annual income if established by a written policy in the PHA’s Admissions or Continued Occupancy Policy (ACOP) or Administrative Plan.

Dependent Deduction

Effective January 1, 2024, the dependent deduction amount is - as it has been - $480. This amount will be adjusted annually, beginning in 2025, and applies to a family’s next annual or interim reexamination after the annual adjustment, whichever is sooner. Not later than September 1 of each year, HUD will publish an adjusted dependent deduction on its website. PHAs and owners will be required to implement the adjusted dependent deduction for all income reexaminations that are effective January 1 or later.

Elderly/Disabled Family Deduction

Effective January 1, 2024, the elderly/disabled family deduction increases from $400 to $525 and applies to a family’s next annual or interim reexamination, whichever is sooner. This deduction will also be adjusted annually based on an inflation factor.

Health & Medical/Disability Related Expenses

In one of the most controversial changes to the current rules, the HOTMA final rule establishes that the sum of unreimbursed health and medical care and reasonable attendant care and auxiliary expenses that exceed 10 percent of the family’s annual income can be deducted from annual income. The current threshold is 3 percent of annual income. This rule applies only to elderly or disabled families.

In order to claim the deduction for disability-related costs, the family must include a person with a disability, and the expenses must enable any member of the family (including the disabled member) to be employed.

Hardship Exemptions for Medical and Disability-Related Expenses

HUD received many comments on the proposed rule relating to hardship exemptions for unreimbursed health and medical care, attendant care, auxiliary apparatus expenses, and childcare expenses. The final rule has been revised to provide clarity to these exemptions and ease burdens on families experiencing financial hardship.

Medical/Disability Expenses

Current regulations permit the deduction of medical expenses from annual income for elderly households if the expenses (1) will not be reimbursed by insurance or another source; and (2) when combined with any disability assistance expenses are in excess of three percent of annual income.

  • The new regulation does not permit the deduction until the medical expenses exceed 10 percent of gross income.
  • This will clearly have a negative impact on many elderly/disabled households. To help ease this burden, the final rule provides two types of hardship exemptions to the ten percent threshold for health and medical care expenses (for elderly and disabled families) and reasonable attendant care and auxiliary apparatus expenses (for families that include a person with disabilities).
  • The first category ("phased in relief") is for families eligible for and taking the unreimbursed health and medical care expenses and reasonable attendant care and auxiliary apparatus expenses deduction in effect prior to this rule (i.e., the 3% rule).
  • The second category ("general relief") is for families that can demonstrate that the family’s health and medical care expenses or reasonable attendant care and auxiliary apparatus expenses increased, or the family’s financial hardship is a result of a change in circumstances that would not otherwise trigger an interim reexamination.
    • HUD is adding this second category in the final rule in recognition that the change from the three percent threshold to the new ten percent threshold for unreimbursed health and medical care expenses or reasonable attendant care and auxiliary apparatus expenses may result in financial hardship for families, including those families who were not receiving the deduction or may not even have been receiving housing assistance at the time the final rule goes into effect.
    • These families may receive temporary hardship relief if their health and medical care expenses or reasonable attendant care and auxiliary apparatus expenses exceed five percent of the family’s income.
  • Under the first category (families taking the deduction based on the three percent rule), owners must deduct eligible expenses exceeding five percent of the family’s income for the first year, 7.5% for the second year, and 10% for the third year. It should be noted that the term "year" refers to the certification year - not the calendar year.
  • Under the second category, a family may qualify for hardship exemptions for health and medical care expenses or reasonable attendant care and auxiliary apparatus expenses if the family can demonstrate that the expenses increased, or the family’s financial hardship is a result of a change in circumstances (as determined by the project owner).
    • For these families, the deduction will be for expenses in excess of five percent of family income for up to 90 days.
  • This may be extended for additional 90-day periods at the discretion of the owner, based on family circumstances.
    • Owners may also terminate the hardship exemption if it is determined that the family no longer needs the exemption.
  • Examples of circumstances constituting a financial hardship may include the following situations:
    •  The family is awaiting an eligibility determination for a federal, state, or local assistance program, such as a determination for unemployment compensation or disability benefits; The family’s income decreased because of a loss of employment, the
    death of a family member, or due to a natural or federal/state-declared
    • disaster; or
    •  Other circumstances as determined by the PHA/MFH Owner.

In some circumstances, families receiving the deduction under the first category may request relief under the second category of hardship relief.

  • During the second year of transition, the owner deducts expenses exceeding 7.5 percent of family income if relief is being obtained under the first category.
  • If the family can demonstrate that the health and medical care expenses or reasonable attendant care and auxiliary apparatus expenses increased or the family’s financial hardship is a result of a change in circumstances, and not just due to the transition to the 7.5% threshold, the family may be granted relief under the second category.
  • In this case, expenses exceeding five percent of the family income will be deducted (instead of 7.5%). However, this relief will last only for 90 days (unless extended by the owner), and the family is no longer eligible for relief under the first category.
    • In other words, at the end of the relief period for the second category, the family will be subject to the regular health and medical care expenses or reasonable attendant care and auxiliary apparatus expenses deduction threshold of ten percent, regardless of whether they fully transitioned to the ten percent threshold under the first category.

Child Care Expense Deduction

HUD regulations permit the deduction from annual income of any reasonable child-care expenses necessary to enable a family member to work or further their education. The expenses must be unreimbursed and must be for the care of a child age 12 and younger.

Childcare Deduction Hardship Relief

Under the final rule, property owners may extend a deduction for unreimbursed childcare expenses for 90 days, with extensions for additional 90-day periods if the family can demonstrate that they are unable to pay their rent due to loss of the childcare expense deduction, and the childcare expense is still necessary even though the family member is no longer employed or furthering his or her education. The following example illustrates how this relief could work:

  • A family that was claiming the childcare deduction no longer qualifies because the care is no longer necessary to enable a family member to work or go to school.
  • The family member who was employed had to leave their job in order to provide uncompensated care to an elderly friend who is very ill and lives across town.
  • The family may continue to claim the childcare deduction for 90 days, with 90-day extensions as approved by the owner.

Hardship Policy Requirements

Owners must establish policies on how they define what constitutes a hardship. Some factors to consider when determining if a family is unable to pay rent may include a determination that the rent, utility payment, and applicable expenses (child care or health/disability expenses) are more than 45 percent (for example) of the family’s adjusted income, or verifying whether the family has experienced unexpected expenses, such as large medical bills, that have impacted their ability to pay rent.

Owners are required to notify families of either approval or denial of hardship exemptions. Notices of hardship exemption approval must inform the family of the dates that the exemption will begin and expire and the requirement for the family to report if the circumstances that made the family eligible for relief are no longer applicable. Owners of hardship exemption denial must state the reason for the denial.

The 90-Day Extensions

Owners may extend hardship relief for as many 90-day periods as the hardship continues to affect the family. Policies for extensions of relief must be included in PHA Administrative Plans and Owner Tenant Selection Plans.

Owners must obtain third-party verification of the family’s inability to pay rent or must document in the file the reason that third-party verification was not available. Owners must attempt to obtain third-party verification prior to the end of the 90-day period.

In conclusion, the adjustments to HUD regulations as delineated in Notice H 2013-10 reflect a concerted effort to modernize and improve the process of determining adjusted income for HUD-assisted families. While the increase in the threshold for medical and disability deductions may initially pose challenges for elderly and disabled households, the provision of phased and general hardship exemptions showcases HUD's commitment to a compassionate transition. The annual adjustments to dependent and elderly/disabled family deductions, along with the specific provisions for hardship exemptions, are designed to ensure that the most vulnerable populations continue to receive the support they need. By establishing clear guidelines and relief procedures, HUD aims to provide equitable opportunities for housing while addressing the complexities of financial hardship. As these changes roll out, it will be crucial for public housing agencies, owners, and families to stay informed and engaged with the evolving landscape of housing assistance to navigate these changes successfully.

Latest Articles

"HUD Issues New Guidelines on AI Usage in Applicant Screening"

On May 2, 2024, the Department of Housing & Urban Development (HUD) released two crucial guidance documents. These documents address the Fair Housing Act (FHA) application to two areas where the use of artificial intelligence (AI) poses particular concerns: the tenant screening process and its application to the advertising of housing opportunities through online platforms that use targeted ads. This guidance, mandated by an Executive Order from President Biden, is a significant step in combating discrimination enabled by algorithmic tools used to make leasing decisions. In this article, I will explain the HUD guidance regarding tenant screening using AI and outline the crucial steps that owners and managers of multifamily housing must take to avoid potential liability in this area. Your role in implementing these steps is vital to ensuring fair and nondiscriminatory housing practices. This guidance from HUD is a comprehensive explanation of how the Fair Housing Act serves as a protective shield for the rights of applicants for rental housing. It provides recommendations and best practices for housing providers and tenant screening companies to ensure compliance with the Fair Housing Act. The guidance's primary goal is to guarantee that the screening of applicants for rental housing is conducted in a nondiscriminatory manner. It also aims to help applicants understand their rights and identify instances when they may have been unlawfully denied housing. The guidance also acknowledges the growing use of advanced technologies, such as machine learning and artificial intelligence, by tenant screening companies and reiterates that the Fair Housing Act applies to housing decisions irrespective of the technology used. According to the guidance, certain screenings are particularly likely to pose fair housing concerns. These include: Screening criteria that disproportionately exclude applicants of a certain race or other protected class: If a screening policy has a disparate impact on a protected class, it may be considered discriminatory. Conducting more precise screenings focusing on relevant information can help mitigate this concern. Screening based on past actions unrelated to tenancy or incidents unlikely to recur: Screening policies should focus on information relevant to applicants' ability to comply with their tenancy obligations. Screening criteria that consider past actions or incidents that are not directly related to tenancy or are unlikely to recur may result in unfair and discriminatory exclusions. Inaccurate records and incomplete datasets: Screening companies should ensure that the records they use are accurate and complete. Inaccurate records can disproportionately affect certain demographic groups, and incomplete datasets may lead to biased screening outcomes. Screening companies should also avoid using wildcard or name-only matching procedures, which can lead to erroneous attributions and misidentifications. Overbroad screening policies: Screening policies should be tailored to the specific needs and circumstances of the housing provider. Overbroad screening policies that consider irrelevant or unnecessary information may result in discriminatory outcomes. Screening policies should be clear, detailed, and publicly available to ensure transparency and fairness. Lack of transparency in complex models: Housing providers and tenant screening companies that use complex models, such as those based on machine learning or artificial intelligence, should ensure transparency in their decision-making processes. Lack of transparency can make it difficult to assess whether a model complies with fair housing laws and can lead to discriminatory outcomes. Models should be designed, tested, and monitored for fairness and accuracy. Housing managers and tenant screening companies must be fully aware of these fair housing concerns and take immediate steps to address them in their screening practices. Non-compliance can lead to serious legal and reputational consequences, underscoring the urgency of this matter. The three types of screenings discussed in the document are: Credit History Screening: This type of screening involves assessing an applicant's credit history, including their credit scores and reports. The document highlights the disparities and potential discriminatory effects based on race, national origin, sex, disability, or other protected characteristics. It emphasizes that credit scores were not designed to predict tenancy behavior accurately and that overreliance on credit history may result in unjustified discrimination. Eviction History Screening: Eviction history screening involves reviewing an applicant's records for past evictions. The document points out that eviction records can be unreliable. It highlights the disproportionate impact of evictions on certain groups, such as Black and Hispanic renters, women, families with children, and individuals with disabilities. It cautions against overbroad screening policies that do not consider eviction records' nature, recency, or relevance and emphasizes the need for fair and accurate assessments. Criminal Records Screening: This type of screening involves considering an applicant's criminal history. The document highlights the disproportionate impact on individuals with disabilities and Black and Brown persons and emphasizes that overbroad criminal record screenings can have unjustified discriminatory effects. It recommends differentiating between offenses based on their nature, severity, and recency and providing opportunities for applicants to present evidence of rehabilitation or mitigating factors. Reasonable accommodations may be required for individuals with disabilities or those who have experienced domestic violence, dating violence, sexual assault, or stalking. These three screenings are particularly likely to pose fair housing concerns due to the potential for disparate impact and discriminatory outcomes. The document provides guidance on how housing providers and tenant screening companies can ensure their screening practices comply with fair housing laws and promote equal opportunity for all applicants. The Role of Tenant Screening Companies in Discriminatory Decisions Tenant screening companies can play a role in discriminatory decisions by providing screening reports and recommendations to housing providers. They influence the outcome through their screening practices, criteria and standards, discretionary factors, denial recommendations, and the accuracy and completeness of records. Tenant screening companies must ensure compliance with fair housing laws and strive for transparency, accuracy, and fairness in their screening processes to minimize the potential for discriminatory decisions. Most importantly, owners must remember that it is not the screening companies who deny applicants - it is the property owners. Courts Have Weighed in on the Issue The document mentions several court cases to provide legal context and support the guidance related to tenant screening practices and the Fair Housing Act. Key cases include: Sec y of Dept. of Hous. & Urb. Dev. ex rel. Loveless v. Wesley Apt. Homes, LLC: Related to tenant screening practices. Conn. Fair Hous. Ctr. v. CoreLogic Rental Prop. Sols., LLC: Highlights tenant screening companies' liability under the Fair Housing Act. Meyer v. Holley: Explains vicarious liability and housing providers' responsibility for agents' actions. Sabal Palm Condos. of Pine Ridge Ass n, Inc. v. Fischer: Discusses tenant screening companies' liability. United States v. Balistrieri: Supports the broad application of the Fair Housing Act. Village of Arlington Heights v. Metro. Hous. Dev. Corp.: Related to proving discriminatory intent. McDonnell Douglas Corp. v. Green: Framework for proving discriminatory intent using circumstantial evidence. Tex. Dept. of Hous. & Cmty. Aff. v. Inclusive Cmtys. Project, Inc.: Burden-shifting framework for proving discriminatory effects. La. Fair Hous. Action Ctr. v. Azalea Garden Props., LLC: Example of discriminatory effects liability in tenant screening practices. Information to Provide When Denying an Application When denying an applicant's application, the following information should be provided to the applicant: A detailed denial explanation that specifies the reasons for the denial and the specific standards or criteria that the applicant did not meet. Supporting documentation, such as the screening report or records relied upon in making the decision. Information on how to dispute the accuracy or completeness of any negative information. Information on how to request an appeal if an appeal process is available. Information on requesting a reasonable accommodation if the applicant has a disability. An adverse action notice that includes the specific reasons for the denial based on screening results. Contact information for the tenant screening company or housing provider responsible for the denial. Information on the screening process, including the criteria used for evaluation and the sources of information relied upon. The right to dispute or correct any inaccurate information that may have contributed to the denial. Reminders of fair housing rights and protections, including information on filing a complaint if discrimination is believed to have occurred. Bottom Line To comply with the guidance provided, owners can consider the following recommendations: Review and update screening policies to ensure they are fair and do not disproportionately impact protected groups. Use disparate impact analysis to identify and mitigate any potential discriminatory effects of screening policies. Evaluate alternative methods of assessing an applicant's financial responsibility, such as rental payment history or income verification, instead of relying solely on credit history. Carefully assess eviction history screening practices, considering the circumstances surrounding the eviction. When conducting criminal records screening, differentiate between criminal offenses based on their nature, severity, and recency. Implement mitigating circumstances and provide reasonable accommodations for applicants with disabilities or those who have experienced domestic violence. Regularly audit and monitor screening practices to ensure compliance with fair housing laws. Provide transparency in the screening process by clearly communicating the criteria and allowing applicants to challenge negative information. Stay informed about fair housing laws and seek legal guidance to ensure compliance with the latest guidelines and requirements. Finally, remember that overreliance on screening company algorithms to make leasing decisions can lead to fair housing trouble. It is people who are applying for housing. It should be people who make the final decision about that person's suitability for housing.

Read full story

A. J. Johnson Partners with Mid-Atlantic AHMA for Affordable Housing Training - June 2024

In June 2024, A. J. Johnson, a renowned expert in the field, will join forces with the esteemed Mid-Atlantic Affordable Housing Management Association to conduct training sessions for real estate professionals. These sessions, tailored for those in the affordable multifamily housing field, will be delivered through live webinars, culminating in an in-person administration of the HCCP exam.  The following sessions are scheduled: June 6: HOTMA - Update on HUD Requirements - On January 9, 2023, HUD published a final rule implementing The Housing Opportunity Through Modernization Act (HOTMA), signed into law on July 29, 2016. This final rule was published in the Federal Register on February 14, 2023, and became effective on January 1, 2024. Virtually all HUD programs are impacted by the rule, as are the Low-Income Housing Tax Credit (LIHTC) Program and the Rural Development Section 515 Program. Since publishing the final rule in February 2023, HUD has provided additional guidance in implementing the rule, including extensions regarding implementation. This three-hour training will explain any updated HUD guidance and will cover the following areas: (1) Definitional changes relating to earned and unearned income, non-recurring income, and foster children; (2) Revised Income Exclusions; (3) New requirements relative to Student Financial Assistance; (4) Changes to the HUD permitted deductions from gross income, including a full review of the new "hardship exemptions; (5) Brand new rules regarding assets; (6) New Interim Recertification requirements; (6); and (7) the new definition of "annual income. This session is a must for all managers of HUD, Rural Development, and LIHTC properties and will provide plenty of opportunity for Q&A. June 11: 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 and minimum set-aside issues (including the Average Income Minimum Set-Aside), optional fees, HOTMA changes, and use of common areas are included. The Available Unit Rule is covered in great detail, as are the requirements for units occupied by students. Attendees will also learn the requirements for setting rents at a tax-credit property. This course contains some practice problems but is more discussion-oriented than the Basic course. A calculator is required for this course. June 12: 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. Individuals taking the HCCP exam on June 13 will be provided with study materials and a practice exam to assist in preparation for the HCCP exam. June 13: Review of testable areas and administration of the Housing Credit Certified Professional (HCCP ) exam (In-person exam in Richmond, VA). After two days of intensive and comprehensive live webinar LIHTC training, AJ will review program requirements and administer the HCCP exam in person. 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 effectively manage the complex requirements of the various agencies overseeing these programs. Persons interested in any (or all) training sessions may register by visiting either www.ajjcs.net or https://www.mid-atlanticahma.org.

Read full story

HUD Issues Fair Housing Act Guidance on Use of Artificial Intelligence

On May 2, 2024, the Department of Housing & Urban Development (HUD) released two guidance documents addressing the application of the Fair Housing Act (FHA) to two areas in which the use of artificial intelligence (AI) poses particular concerns: the tenant screening process and its application to the advertising of housing opportunities through online platforms that use targeted ads. This guidance follows an Executive Order from President Biden that required HUD to provide guidance to combat discrimination enabled by algorithmic tools used to make leasing decisions. This guidance clearly states that the FHA applies to tenant screening and housing advertising, including when AI performs these functions. The tenant screening guidance describes fair housing issues created by tenant screening practices, including the increasing use of third-party screening companies to aid tenant screening decisions and the emerging use of machine learning and AI. The guidance also suggests best practices for fair, transparent, non-discriminatory tenant screening policies for housing providers and companies offering tenant screening services. Housing providers and tenant screening companies are crucial in ensuring that tenant screenings are transparent, accurate, and fair. The tenant screening guidance underscores that the use of third-party screening companies, including those that use AI or other advanced technologies, must comply with the FHA. It also emphasizes the importance of ensuring that all housing applicants are given an equal opportunity to be evaluated on merit, making you feel responsible and accountable for fair practices. Advertisers and online platforms should be acutely aware of the risks of deploying targeted advertisement tools for ads covered by the FHA. Violations of the Act can occur when certain ad targeting and delivery functions unlawfully deny consumers information about housing opportunities based on their protected characteristics. Similarly, violations can occur when ad targeting and delivery functions are used, based on protected characteristics, to target vulnerable consumers for predatory products or services, display content that could discourage or deter potential consumers, or charge different amounts for delivered advertisements. This highlights the need for caution and strict adherence to the FHA. Owners and managers using third-party screening services for applicant selection should carefully review this new HUD guidance. I will provide future articles analyzing both the screening guidance and the use of online platforms.

Read full story

HUD Publishes Income and Rent Limits for Multiple Programs, Including HOME

The Department of Housing and Urban Development (HUD) published income limits for seven programs on April 29, 2024. Income limits for the following programs go into effect on May 1, 2024: Community Development Block Grant (CDBG) CDBG Disaster Recovery Neighborhood Stabilization Program (NSP) Income limits for the following programs go into effect on June 1, 2024: Emergency Solutions Grants (ESG) Housing Opportunities for Persons with AIDS (HOPWA) HOME Investment Partnerships Program (HOME) Housing Trust Fund (HTF) HUD also published the 2024 rent limits for HOME and HTF, which take effect on June 1, 2024. For the CDBG, CDBG-DR, and NSP programs, HUD is ensuring the accuracy of the information by updating the CPD Income Eligibility Calculator on May 1, 2024, to reflect these programs effective date. It's important to note that calculations based on the FY 2023 Income Limits data will only be accessible if downloaded from the calculator and saved to a user s hard drive (or printed off) before May 1. Calculations completed on or after May 1 will use the FY 2024 Income Limits to determine eligibility. Please note that for the rest of the CPD programs (e.g., ESG, HOPWA, HOME, HTF), the CPD Income Eligibility Calculator will continue to use FY 2023 Income Limits until the FY 2024 are in effect on June 1, 2024.

Read full story

Want news delivered to your inbox?

Subscribe to our news articles to stay up to date.

We care about the protection of your data. Read our Privacy Policy.