HOTMA Final Rule – Revised Exclusions to Income

The Department of Housing & Urban Development (HUD) has released a Final Rule implementing the Housing Opportunity Through Modernization Act of 2016 (HOTMA). This final rule was published in the Federal Register on February 14, 2023. With the exception of changes relating to Non-Public Housing Over Income families (which take effect on March 16, 2023), this final rule takes effect on January 1, 2024.

 The Housing Opportunity Through Modernization Act (HOTMA) was signed into law on July 29, 2016, amending many aspects of Multifamily Housing programs (as well as programs administered through the Offices of Public and Indian Housing and Community Planning and Development). HOTMA was intended to streamline processes and reduce burdens on housing providers. On September 17, 2019, HUD issued a proposed rule to update its regulations according to HOTMA’s statutory mandate. The final rule, published on January 9, 2023, considers public comment received on the proposed rule and provides additional guidance for implementing Sections 102, 103, and 104 of HOTMA.

Which Programs will be Affected by the Final Rule?

 The Section 8 PBRA (including RAD), Section 202/811 PRAC, 202/8, 202/162 PAC, Senior Preservation Rental Assistance Contract (SPRAC), and Section 811 Project Rental Assistance (811 PRA) programs will see changes due to HOTMA.

This is the second in a series of articles I will write on the sweeping changes that will be made to HUD affordable housing programs. This article will focus on the revised income “exclusions” made by the final rule.

  • PHAs, owners, and grantees are not required to calculate and may not include imputed income on assets when a household’s net family assets are valued at or below $50,000. This amount will be adjusted annually for inflation. The actual income from assets continues to be included in income, regardless of the amount of assets.
  • For an irrevocable trust or a revocable trust outside the control of any member of the household, the final rule excludes from income distributions of the principal or the property that was transferred into the trust. Distributions of income (e.g., interest earned) from the trust when the distributions are used to pay the cost of health and medical care expenses for a minor are also excluded.
  • For a revocable trust or trust that is under the control of the household, distributions from the trust are excluded from income, but any actual income earned by the trust (i.e., interest, dividends, rent), regardless of whether it is distributed, shall be considered income to the family.
  • Income received for the care of foster children or adults has long been excluded. This final rule expands the exclusion to State or Tribal kinship or guardian care payments.
  • Payments and settlements from insurance for personal or property loss are excluded, as are payments through health insurance, motor vehicle insurance, and worker’s compensation.
  • Payments from training programs funded by HUD or qualifying Federal, State, Tribal, or local employment training programs (including training programs not affiliated with a local government) and payments from training of a family member as a resident management staff are excluded from income.
  • Since the $480 dependent deduction will be adjusted annually based on inflation, the final rule clarifies that for full-time students age 18 and over who are dependents of the household, any income in excess of the dependent deduction is excluded from income. I.e., only the amount of the dependent deduction will be counted as income.
  • All payments from State Medicaid agencies for in-home support are excluded from income. Payments made or authorized by a Federal agency for this purpose are also excluded from income.
  • Amounts paid directly to a member of an assisted family by a State Medicaid agency (including through a managed care entity) or other State or Federal agency (or entities authorized by the agencies to make such payments) to enable a family member who has a disability and wishes to remain in the unit are excluded from income. This applies only when the payments to the family member are for the care of another member of the family living in the unit.
  • HUD is clarifying the general exclusion for “nonrecurring income,” by defining nonrecurring income as income that will not be repeated in the coming year, based on information that the family provides. The exclusion specifically states that income earned as an independent contractor, day laborer, or seasonal worker does not count as “nonrecurring” income and is therefore included as income. The wording of this exclusion indicates that in order to be recurring, income must be received on an “annual” basis – it need not be received monthly, quarterly, etc.
    • Examples of nonrecurring income provided by HUD include: (1) payments from the U.S. Census Bureau for work on the decennial Census or the American Community Survey that is less than 180 days and does not result in a permanent position; (2) direct Federal or State payments intended for economic stimulus or recovery; (3) amounts received directly by a family as a result of State or Federal refundable tax credits or refunds at the time they are received; (4) gifts for holidays, birthdays, or significant life events or milestones; (5) non-monetary, in-kind donations from food banks or similar organizations; and (6) lump-sum additions to assets such as lottery or other contest winnings.
  • HUD is adding a new income exclusion that broadly excludes any income a family receives from civil rights settlements or judgments regardless of how the settlement or judgment is structured (i.e. whether by a lump-sum or payment schedule). However, the settlement or judgment amounts will be counted toward a family’s net assets if deposited into an account that would otherwise be considered an asset. The interest from such accounts will be considered asset income.
  • Any income received from any account under a retirement plan recognized by the IRS, including IRAs, employer retirement plans, and retirement plans for self-employed individuals shall be excluded. However, any distribution of periodic payments from these retirement accounts shall be considered income.

The final rule also makes changes to the exclusion of income relating to student financial assistance. However, this section of the rule is complex and will be discussed in the next article in this series.