The Arizona Department of Housing (“ADOH” or “Agency”) reserves the right to modify, revoke, suspend, terminate, or change any of the provisions of this manual, in whole or in part, at any time. ADOH policies and procedures, as well as the contents of this manual, may change. This manual replaces all earlier versions.

PREFACE

This manual is a training and reference guide for the administration of the Low-Income Housing Tax Credit (LIHTC or “Credit”) Program. It is designed to answer questions regarding the procedures, rules and regulations that govern LIHTC developments and is a useful resource for owners and developers, management companies, and on-site management personnel.

This manual supplements the existing laws and rules prescribed by the Internal Revenue Service (the “IRS”) in Section 42 of the Internal Revenue Code (the “Code”), the operative version of the Qualified Allocation Plan (“QAP”), and related regulations. This manual should not be considered an exhaustive guide for LIHTC compliance. If a determination is made that any provision of this manual conflicts with Section 42 of the Code, then the Code will govern.

The responsibility for compliance with federal LIHTC Program regulations lies with the owner of the building(s) for which the Credit is allowable. This Agency is not liable for an owner’s noncompliance (26 C.F.R. § 1.42-5(g)). Because of the complexity of LIHTC regulations and the necessity to consider their applicability to specific circumstances, owners should seek competent legal and accounting advice regarding compliance issues.

Please direct questions regarding compliance to ADOH at (602) 771-1000.

LIHTC PROGRAM

The LIHTC Program is a federal program created by the 1986 Tax Reform Act under Section 42 of the Code. The Omnibus Budget Reconciliation Acts of 1989, 1990, 1993 and 2018 amended the Code. The LIHTC Program is an incentive for taxpayers to provide housing for low-income residents in exchange for credits against federal income taxes that provide a dollar-for-dollar reduction in tax liability to investors in exchange for the construction, acquisition, and/or rehabilitation of low-income rental housing. The amount of Credit allocated is directly based on the number of qualified low-income units that meet federal rent and income targeting requirements.

Under Section 42(m)(1)(B)(iii) of the Code, the allocating agency is responsible for monitoring LIHTC projects for compliance with the provisions of the Code. This applies to all buildings that have been placed in service and for which the LIHTC as determined under the Code is or has been allowed at any time since the inception of the program in 1987. This monitoring requirement became effective January 1, 1992.

TAX EXEMPT BONDS

Except as noted below, the compliance rules and regulations outlined in this manual also apply to projects funded with the tax-exempt bonds under Section 142 of the Code.

• Projects funded with tax-exempt bonds should check with their bond issuer to see if they can utilize the self-certification of assets (i.e., the Asset Self-Certification Form and Workbook). If ADOH is the bond issuer and the combined net assets are $50,000 or less, then self-certification of assets is acceptable. (The “Asset Self-Certification” form can be found on the ADOH website at https://housing.az.gov/documents-links/forms/rental-compliance-monitoring.)
• For projects funded only with tax exempt bonds, the Next Available Unit Rule is a project rule instead of a building rule. However, per the Housing and Economic Recovery Act of 2008 (“HERA”), the Next Available Unit Rule is a building rule for projects that are funded with both tax credits and bonds.
• Prior to HERA, projects with tax-exempt bonds could only apply one student status exemption (married and entitled to file a joint tax return). Post HERA, all tax credit student status exemptions apply to bond projects.

HOUSING AND ECONOMIC RECOVERY ACT OF 2008 (HERA)

On July 30, 2008, Congress passed H.R. 3221, also known as the Housing and Economy Recovery Act of 2008 (“HERA”). This legislation was enacted as a response to the market conditions and economic issues of the time. Changes to Section 42 that came about as a result of HERA included:

• The recertification exemption for 100% tax credit projects
• The hold-harmless policy and HERA special rent and income limits
• Alignment of tax credit and tax-exempt bond compliance rules
• Addition of a fifth student status exemption for individuals formerly in foster care
• Changes to the Applicable Credit Percentage rules

AMERICAN RECOVERY AND REINVESTMENT ACT OF 2009

The American Recovery and Reinvestment Act of 2009 (“ARRA”) created two temporary funding programs. First, the Tax Credit Assistance Program (“TCAP”) provided funding from the U.S. Department of Housing and Urban Development (“HUD”) to be used as gap financing for tax credit awards. To receive a TCAP allocation, a project must also have an award of tax credits. All compliance rules and regulations within this manual apply to the TCAP program. TCAP generally follows tax credit ongoing compliance as outlined in this manual. Additionally, TCAP-assisted projects must follow Affirmative Fair Housing Marketing Plan and lead-based paint requirements.

Second, the Tax Credit Exchange Program (“TCEP”) permits unsold tax credits to be exchanged for cash. TCEP funds can be used to fully fund a project or in conjunction with tax credits. Therefore, some projects may be fully funded through the TCEP while others may be funded through both LIHTC and TCEP. All compliance rules and regulations within this manual apply to the TCEP.

HOUSING OPPORTUNITY THROUGH MODERNIZATION ACT OF 2016

Section 102 of the Housing Opportunity Through Modernization Act of 2016 (“HOTMA”) redefines income and asset calculations and verification requirements and is applicable to certifications effective on or after January 1, 2024. This manual has been updated to include HOTMA provisions, including requirements from the HOTMA final rule and HUD Notice H-2023-10/PIH 2023-27 “Implementation Guidance: Sections 102 and 104 of the Housing Opportunity Through Modernization act of 2016.” ADOH will note HOTMA related non-compliance issues identified in calendar year 2024 and will require corrective action. Notwithstanding the foregoing, ADOH may exercise its discretion to not impose penalties (e.g., issue 8823s) for HOTMA-specific violations during calendar year 2024.

1.1 THE OWNER

Each owner has chosen to utilize the LIHTC Program to take advantage of the tax benefits provided. In exchange for these tax benefits, certain requirements must be met. Any violation of program requirements could result in the loss and/or recapture of credits allocated. Upon receiving an allocation of LIHTCs, the owner/agent is responsible for:

A. Following the instructions in this Arizona LIHTC Program Compliance Manual.

B. Completing and submitting the Annual Owners Certificate of Continuing Program Compliance Report (the “Annual Report”). Effective January 1, 2014, all LIHTC Multi-Family rental developments are required to enter tenant events annually using the ADOH online system. This annual report is due annually on March 15th to ADOH. It is the responsibility of the owner/agent to continually check the ADOH website for any changes. The address is https://housing.az.gov/. (See, Section 2.3).

For HOME, SHTF, NHTF & NSP projects, the Annual Report is due annually on August 1st and must be uploaded via the Compliance Annual Report Portal on the ADOH website.

C. Submitting the income & rent limits for the reporting year with the Annual Report.

D. Submitting the lease term and signature pages for any households in the reporting year who occupied a unit for less than six months with the Annual Report.

E. Submitting a copy of the initial certification and recertification that put a family over income for any family in the reporting year whose income exceeded 140% of the income limit for the family size with the Annual Report.

F. Submitting the utility allowance schedule for the reporting year with the Annual Report.

G. Paying the compliance monitoring fee, as determined by the QAP for the year the tax credits were awarded. (Please note, ADOH no longer sends invoices regarding the compliance monitoring fee. The invoice can be found on the ADOH website under “Housing Invoices”.)

H. Attending compliance training opportunities. If required under the Project’s QAP or LURA, the Management Agent’s annual Compliance Training Certificate must be submitted with the Annual Report. ADOH may require attendance from owner or management agents who are found to be out of compliance or to have a history of noncompliance. For new projects, training must be completed before the project is placed in service, but is not required to be completed before the application is submitted. (See the ADOH website for upcoming Training Opportunities).

I. Participating in and facilitating ADOH’s compliance monitoring. Compliance monitoring includes physical inspections performed under the National Standards for the Physical Inspection of Real Estate (“NSPIRE”) and reviews of records.

J. Making all required corrections and/or clarifications as determined necessary for compliance within 30 days of the initial findings letter. This action must be completed and a response received within the time frame established by ADOH. ADOH is required to notify the IRS of an Owner’s noncompliance no later than 45 days after the end of 90-day correction period, whether or not the noncompliance is corrected. ADOH will notify the IRS by filing IRS Form 8823, explaining the nature of the noncompliance and indicating whether the owner/agent has corrected the noncompliance. (See section 2.9)

K. Keeping records for each building pursuant to Section 2.7 of this manual.

L. Notifying ADOH of any change in the management agent. Changes in management agent must be reported by submitting an updated contact sheet to the Compliance Division at compliance@azhousing.gov

M. Obtaining approval from ADOH prior to any change in ownership. Requests for approval for ownership changes must be submitted to the Asset Management Division at AMD@azhousing.gov (See the Asset Management Handbook, which can be found on the ADOH website).

N. Immediately notifying ADOH of any noncompliance with IRS requirements, whether with regard to a unit, building, or the entire project. The owner/agent must formulate a plan of action to bring the development back into compliance and advise ADOH in writing of such plan (see 8823 Guide).

O. Leasing units to eligible families in a non-discriminatory manner

P. Charging no more than the maximum allowable rent (including utility allowances and non-optional fees)

Q. Maintaining the property in habitable condition. The owner/agent is responsible for ensuring that the development is maintained in a decent, safe, and sanitary condition in accordance with appropriate standards, including NSPIRE. Failure to do so is a reportable act of noncompliance. (See the HUD website for more information about NSPIRE.)

R. Complying with the terms of the Initial and Final Applications and Extended Use Agreement. In addition to meeting rent and income restrictions, this obligation includes providing the agreed upon services, amenities, design features, and any special population targeting throughout the extended use period. ADOH will monitor for compliance with these elections.

S. Training onsite personnel. The owner/agent must ensure that onsite property management staff know, understand, and comply with all applicable federal and state rules, regulations and policies governing the development, including all elections made in the Final Application, Form 8609(s), and Extended Use Agreement. As a best practice, ADOH encourages the owner/agent to ensure that the development’s property management and compliance personnel are familiar with the most current edition of the ADOH Compliance Manual, compliance forms and information on the ADOH website, and the online reporting requirements through HDS NextGen database.

T. Providing all pertinent information to the management agent or any subsequent owners. To ensure compliance, the owner should provide management agents with copies of at least the following documents: the Final Application for rental housing financing, the recorded Extended Use Agreement, the Carryover Agreement, Form 8609 for each building, and the QAP for the year the project was awarded credits. If there is a change in management companies, the owner is responsible for providing all information and previous tenant files to the new management company. If there is a change in ownership, the existing/previous owner is responsible for providing all award documentation and previous tenant files to the new owner. (See the Asset Management Handbook for more information about owner changes).

U. Following Affirmative Fair Housing Marketing Plan requirements and submitting required Fair Housing documents.

V. Requesting Approvals for State Housing Fund Rents (“SHF”) rents. If the project contains HOME, SHTF, NHTF or NSP assisted units, the owner/agent must submit requests for any changes in rent to ADOH for approval. At least annually at the time that new rent limits are released by HUD, the owner/agent must provide an update to ADOH on its proposed rents for HOME, SHTF, NHTF or NSP assisted units, even if it is proposing no change. (The Rent Increase Request Form can be found on the ADOH website).

W. Demonstrating due diligence to ensure compliance with all applicable federal and State rules and regulations. “Due diligence” means appropriate, voluntary efforts to remain in compliance through business care and prudent practices and policies, including establishing internal controls like separation of duties, adequate supervision of employees, management oversight and review (such as internal audits), third-party verification of tenant income, independent audits, and timely recordkeeping. Due diligence also includes keeping up to date with ADOH policies by reading amended ADOH Compliance Manuals, following ADOH updates via Information Bulletins, and attending ADOH sponsored Tax Credit/HOME trainings.

1.2 THE ARIZONA DEPARTMENT OF HOUSING

In an effort to best meet the requirements as a monitoring agency of the LIHTC Program, ADOH will perform the following functions once a final allocation has been awarded to a particular development:

A. Reviewing the Owners Certificate of Continuing Program Compliance Report (Exhibit A), Project Contact Information Sheet (Exhibit A, Project Info), and the tenant events that are entered into the ADOH online system as submitted by the owner/agent.

B. Reviewing the utility allowance schedule, the Management Agent’s annual Compliance Training Certificates, income and rent limits, lease terms, and signature pages for households occupying units for less than six months, and initial certification and over income certification for families over the 140% limit (during the reporting year) as submitted by the owner/agent.

C. At ADOH’s discretion, performing management reviews of any project, including a physical inspection of the project and a review of resident records.

D. Notifying the owner/agent of any noncompliance with the LIHTC Program.

E. Establishing a schedule with project owners for correcting any noncompliance.

F. Notifying the IRS of all noncompliance issues. ADOH is required to notify the IRS of an owner’s noncompliance no later than 45 days after the end of the allowed time for correction, regardless of whether the noncompliance is corrected. ADOH will notify the IRS by filing IRS Form 8823, explaining the nature of the noncompliance and indicating whether the owner/agent has corrected the noncompliance.

G. Retaining all Annual Owner Certifications and monitoring records for at least three years from the end of the calendar year in which they are received. ADOH will retain records of noncompliance or failure to certify compliance for at least six (6) years after its filing of an IRS Form 8823, Low-Income Housing Credit Agencies Report of Noncompliance.

H. Conducting or arranging for compliance trainings and distributing information regarding the dates and locations of such training to its partners. Training dates can be found on the ADOH website.

1.3 MANAGEMENT AGENT & ONSITE PERSONNEL

The management agent and all onsite personnel are responsible to the owner for implementing all program requirements.

A. Anyone who is authorized to lease apartment units to tenants should be trained on all federal and state laws, rules, and regulations governing certification and leasing procedures, including LIHTC regulations, Fair Housing and nondiscrimination, and Arizona Tenant/Landlord leasing requirements.

B. The owner is responsible for ensuring that the Management Company provides information, as needed, to ADOH and submits all required reports and documentation in a timely manner. ADOH requires that all tenant events be reported via the NextGen management rental reporting system annually by March 15th. For information about the online reporting system requirements, see “Compliance External User Guide” in HDS NextGen.

C. Management Agents must be onsite during ADOH onsite file monitoring and physical inspections to provide access to necessary documentation and to units.

D. The owner is responsible for ensuring that management enters each LIHTC property into the https://housingsearch.az.gov/ online housing search database.

E. A representative from either the Management Company or Ownership must be present during the 1st visit, as ADOH will review all agreed upon amenities, set asides, unit counts, etc.

2.1 THE COMPLIANCE PERIOD

A project receiving LIHTC allocations must remain a qualified low-income housing project as defined in Section 42 of the Code for its entire compliance period.

Projects that receive a LIHTC allocation must comply with eligibility requirements for a period of at least 15 years beginning with the project’s first taxable year and enter into a Declaration of Affirmative Land Use and Restrictive Covenants Agreement (“LURA”) with ADOH (which addresses the 30-year extended use period). Following the 15-year compliance period, projects that have not terminated the extended use period must comply with eligibility requirements for a total of at least 30 years (and may have agreed to a total of 40 or 50 years, as defined by the LURA). An owner may not claim tax credits for a taxable year unless the LURA was recorded prior to December 31st of the placed-in-service year. As stated above, projects receiving a credit allocation prior to January 1, 1990, have only a 15-year compliance period. However, any building in such a project that received an additional allocation of credits after December 31, 1989, must comply with eligibility requirements in effect beginning January 1, 1990, and will also be bound by a LURA.

2.2 THE COMPLIANCE MANUAL

ADOH will provide this manual to owners of LIHTC projects at the time projects are placed in service. The manual describes ADOH’s compliance monitoring procedures that the owner/agent and management agent must follow. The manual also contains the required reporting and recommended certification forms that must be used and submitted to ADOH, as well as sample resident verification forms. At its discretion, ADOH will from time to time amend the manual to reflect changes in either law or policy.

2.3 ANNUAL OWNER CERTIFICATION

The owner/agent is required to submit an Annual Report to ADOH each year of the compliance period as defined in the LURA. For new projects, the first Annual Report is due on March 15th the year after the owner elected to begin taking tax credits, as evidenced by the First Year Credit Election Form submitted with the Final Allocation package described in the QAP. For example, if the first credit year is 2025, the first Annual Report is due on March 15, 2026. Thereafter, ADOH requires the owner/agent of a low-income housing project to submit Annual Reports at least annually on March 15th.

Owners/agents must certify in their Annual Reports that:

A. The project complies with the requirements for Special Set-Asides on which the allocation was based (e.g., 20%, 30%, 40%, 50% Multifamily Tax Subsidy Projects (“MTSP”)), as applicable.

B. The requirements of the 20-50 Test, 40-60 Test, or the Average Income Test are met. These tests mean that one of the below apply

1. 20-50 – At least 20 percent of the residential units in the project are both rent-restricted and occupied by individuals whose income is 50 percent or less of the Multi-Family Tax Subsidy Limits (MTSP).

2. 40-60 – At least 40 percent of the residential units in the Project are both rent-restricted and occupied by individuals whose income is 60 percent or less of the MTSP.

3. AIT – At least 40 percent of the residential units in the Project are both rent-restricted and occupied by individuals whose income does not exceed the imputed income limitation designation set by the owner. The average of the imputed income limitation designation must not be more than 60 percent of the MTSP.

C. The owner/agent has received an annual Tenant Income Certification form (“TIC”) from each low-income resident and verifying documentation to support that certification.

D. The entire project/building is occupied by LIHTC residents.

E. Each low-income unit is rent-restricted as defined in the Code.

F. All units in the project are for use by the general public and are used on a non-transient basis.

G. Each building in the project is suitable for occupancy, taking into account local health, safety, and building codes.

H. All resident facilities included in the eligible basis of any building in the project are provided on a comparable basis without a separate fee to all residents in the project.

I. There was no change in the applicable fraction of any building in the project (or, if there was a change, a description of the change).

(Applicable fraction is defined as the percentage of qualified low-income units in a building or the percentage of tax credit floor space to rentable floor space in a building, whichever is less.)

J. There has been no change in any building’s eligible basis under the Code (or that there has been a change, with an explanation of the change).

K. A LURA as described in the Code, is in effect for projects receiving allocations on or after January 1, 1990.

L. The project is currently in compliance with the requirements of all federal or state housing programs (e.g., RD assistance, HOME, Section 8, tax-exempt financing), as applicable.

M. If the owner received its credit allocation from the portion of the state ceiling set aside for projects involving “qualified non-profit organizations,” the non-profit entity materially participated in the operation of the development within the meaning of Section 469(h) of the Code.

N. If a low-income unit in the project becomes vacant during the year, reasonable attempts were made to rent that unit or the next available unit of comparable or smaller size to residents having a qualifying income before any units in the project are rented to residents not having a qualifying income.

O. If the income of the residents of a low-income unit increases above 140% of the limit allowed in the Code, the next available unit of comparable or smaller size will be rented to residents having a qualifying income.

P. Whether, for the preceding year, for buildings with four units or less, any of the units in the building were occupied by the owner or a person related to the owner.

Q. Whether, for the preceding year, the project was the recipient of a federal grant or other federal subsidy that would cause a reduction in eligible basis.

R. The state or local government unit responsible for making building code inspections did not issue a report of a violation for the project for the preceding 12-month period.

S. The owner has not refused to lease a unit to an applicant due to the applicant holding a HUD Section 8 voucher or certificate.

T. The project has received no finding of discrimination under the Fair Housing Act, an adverse final decision by HUD, an adverse final decision by a substantially equivalent state or local fair housing agency, or an adverse judgment from a federal court.

U. The property is in compliance with the Violence Against Women Act (“VAWA”) requirements and all related implementing regulations providing protections for residents and applicants who are victims of domestic violence, dating violence, sexual assault, and/or stalking. (Failure to provide protections and rights under VAWA will result in immediate noncompliance with ADOH.)

V. The owner has obtained accurate, allowable, current utility allowances for use in the calculation of rents for the project. In addition, the owner acknowledges this process to be an annual requirement of the LIHTC program and certifies to adhere to this requirement for the duration of the compliance period for the project.

W. The owner is compliant with all Housing Credit agency-mandated protections and any applicable protections required by state or local landlord-tenant laws and rules.

X. The lender has not initiated foreclosure or instrument in lieu of foreclosure since the completion of the last Certificate of Continuing Program Compliance.

Additionally, the owner/agent must submit the following documents to ADOH with the Annual Report via the ADOH Document Portal (hard copies are no longer required):

A. Owners Certificate of Continuing Program Compliance Report (Exhibit A) and Explanations Sheet (if applicable)

B. Project Contact Information Sheet (Exhibit A Project Info)

C. Special Commitments Report (Exhibit D)

D. The annual utility allowance schedule (as of December 31 of the reporting year)

E. Compliance Training Certificate

F. Income and rent limits (as of December 31 of the reporting year)

G. Lease term and signature pages for any households occupying units for less than six months during the reporting year

H. Initial certification and over income certification for families over the 140% limit during reporting year

I. Financial statements should be uploaded, in PDF format, to the ADOH Audited Financial Statements Portal located on the website. Hardcopies should not be mailed in at any time, and must always be uploaded to portal.

J. Compliance monitoring fees. Compliance fees for each property are set fees based on the guidelines of the QAP that was in effect the year the property applied for Credits. Once set for a property, they do not change. Refer to the applicable QAP and/or LURA to determine the fees for your project. The fees are due annually on March 15th. ADOH assesses a $100 late fee for every thirty days the owner/agent is delinquent in paying the monitoring fee after March 15th. Please note, ADOH no longer sends out invoices regarding the compliance monitoring fee, the invoice can be found on the ADOH website under “Housing Invoices.”

Projects that have elected the Average Income Test minimum set aside will be required to submit additional information with their annual reports each year. (See Section 3.1.1) Effective January 1, 2014, all LIHTC Multi-Family rental developments are required to enter tenant events annually using the ADOH online system HDS NextGen.

Failure to submit a completed Annual Report is a non-compliance event. If an Annual Report is not submitted by March 15th for each year of the compliance period, the owner/agent will have 15 days from the date of notification by ADOH to supply the Annual Report. If ADOH determines there is good cause, then ADOH, at its discretion, may grant an extension of this time period. If an owner/agent submits an Annual Report after March 15th or fails to submit an Annual Report, then ADOH will submit a Form 8823 to the IRS, stating the nature of the noncompliance and whether it has been corrected.

2.4 UTILITY ALLOWANCE DETERMINATION

A utility allowance must be used when determining all eligible unit rents only if, and only for, utilities that are paid directly by the resident. If all utilities are provided by the owner/agent, there is no utility allowance. The Internal Revenue Service requires that utility allowances be set according to 26 C.F.R. § 1.42-10.

A copy of the current utility allowance schedule must be submitted to ADOH each year with the Annual Report beginning with the reporting year 2013. Utility allowance schedules often remain the same from year to year. If the table has not changed, the owner/agent must include a copy of a letter confirming that information from the appropriate authority dated in the calendar year covered by the annual report. See Section 3.12 for additional utility allowance information.

2.5 RESIDENT FILE REVIEW AND ON-SITE PHYSICAL INSPECTIONS

As provided in Section 42 of the Code and 26 C.F.R. § 1.42-5, and the applicable LURA, ADOH will review resident files and perform physical inspections of LIHTC projects throughout the compliance period and extended use period, as applicable.

2.5.1 RESIDENT FILES

ADOH will review resident files at least every three years. During a resident file review, ADOH will examine the files for at least 20 percent of the units in the project. Resident file audit information to be reviewed will include, but is not limited to, TICs, Income Questionnaires, documentation received to support those certifications (i.e., income and asset verifications), rent and utility allowance records, leases, and tenant selection plans. Owners/agents must provide organized tenant files to ADOH in chronological order starting with the most recent information on top.

• ADOH requires that the source documents (not the property’s sheet) for income and rent limits and utility allowances be placed directly behind the TIC/Self-Certification to support the amounts listed.
• Note, for the units layered with HOME/SHTF/NHTF/NSP, owners/agents must include both the LIHTC and additional program limits as well as the approved HOME Rent Increase request form behind the TIC.

2.5.2 PHYSICAL INSPECTION

ADOH will perform physical inspections by the end of the second calendar year following the year when the last building in the project is placed in service and at least once every three years afterward. In conducting physical inspections, ADOH will inspect each building and, at a minimum, the number of units identified in the Minimum Unit Sample Size Chart in 26 C.F.R. § 1.42-5 and a sample of vacant units. ADOH conducts physical inspections to ensure developments are suitable for occupancy per the NSPIRE inspection protocol.

ADOH reserves the right to perform a file review and /or physical inspection of any building and/or unit at its discretion any time during the compliance and extended use periods, with or without advance notice to the owner.

Information regarding the NSPIRE inspection protocol can be found at the HUD NSPIRE website.

ADOH will select random samples of both projects and units for review each year. When a project is selected, ADOH will:

1. Notify the owner/agent in writing of the inspection.

2. Establish a time for the inspection.

3. Notify the owner/agent in writing of the results of the inspection.

It is possible that a project could be chosen for review two or more years in a row. ADOH does not give the owner/agent advance notice that a property will or will not be inspected in any particular year.

ADOH reserves the right to be more restrictive than the program requires.

2.5.3 PROJECT CONTACT INFORMATION

ADOH will send correspondence regarding compliance monitoring and physical inspections to the owner contact, management company contact, and the site contact reported during a site visit or Annual Report submission. ADOH will limit contact information to one designated “primary owner contact,” one designated “primary management company contact,” and one designated “site manager.”

If at any time the contact information for a development changes, the owner/agent must inform ADOH in writing of such change with supporting documentation (i.e. updated contact sheet).

2.6 RESIDENT CERTIFICATION REVIEW EXEMPTIONS AND SPECIAL CIRCUMSTANCES

Although IRS regulations permit ADOH to exempt projects from the resident file review process outlined above, projects financed under the RD 515 program, and those which utilize tax-exempt financing under the volume cap limitation on private activity bonds, ADOH does not permit exemptions.

2.7 RECORD KEEPING AND RECORD RETENTION

As required by 26 C.F.R. § 1.42-5, owners/agents must maintain accurate records for each building in the low-income housing project. These records must include:

A. The total number of residential rental units in the building, including the number of bedrooms and the square footage of each residential rental unit.

B. The total number of low-income units in the building.

C. The number of occupants in each low-income unit.

D. The rent charged on each residential rental unit in the building, including any utility allowance.

E. The low-income unit vacancies in the building.

F. The rentals of the next available units in each building, including when and to whom they were rented.

G. Documentation regarding the eligible and qualified basis of each building as of the end of the first year of the tax credit period.

H. The character and use of the nonresidential portion of the building that was included in the building’s eligible basis under the Code (i.e., resident facilities that are available on a comparable basis to all residents and for which no separate fee is charged for use of the facilities, or facilities reasonably required by the project).

I. The tenant income certification data discussed under Section 4 of this manual, “Qualifying Residents”

Owners are required to keep all records for each building for a minimum of six years after the due date (with extensions) for filing the federal income tax return for that year. In addition, the records for the first year of the credit period must be retained for at least six years beyond the due date (with extensions) for filing the federal income tax return for the last year of the compliance period of the building. The owner/agent must provide any and all records to ADOH at any time for its review.

2.8 ELECTRONIC DOCUMENT POLICY

Electronic signature software, electronic storage systems, and resident services software must satisfy the requirements of Revenue Procedure 97-22, Revenue Ruling 2004-82, and HUD Notice H-2020-10, or updated versions of these documents.

2.8.1 ELECTRONIC SIGNATURES

ADOH accepts electronic signatures from tenants, owner/agents, and verifying parties. For ADOH-monitored projects, management can electronically sign any form including the move-in, recertification, self-certification TIC, leases, and supporting documentation. The owner/agent is responsible for ensuring that the signature is that of the tenant.

For digital signatures to be considered a legal form of electronic signature, the system or application must conform to the National Institute of Standards and Technology (NIST), Federal Information Processing Standards (FIPS) Digital Signature Standard 186-4, and other Federal Government digital signature regulations and guidance. Compliant software programs will contain a security feature that ensures that the digital signature is unique and protected and that only the “owner” of the signature maintains control of its use (HUD Notice H2020-10).

The owner/agent is responsible for confirming investor and syndicator approval of the use of electronic signatures, etc.

ADOH-monitored projects that intend to use electronic signatures must take the following actions:

A. Management Policy: Initially, and in case of a change in ownership, the owner/agent must develop and implement a policy and procedure for the use of electronic signatures. ADOH has no liability for owner/management company electronic signature policies that do not meet IRS and/or HUD rules and regulations.

B. ADOH document requests: Owners/agents must provide hard copies of tenant files to ADOH upon request.

C. File Format: Owners/agents must provide electronic tenant files in a format compatible with ADOH software.

D. Accommodations: The electronic signature policy must provide accommodations to residents who request to review and sign hard copies of documents.

To support certifications that were signed electronically please attach the “electronic signature page” or a similar document generated by your services software and place it directly behind the TIC. If the electronic signature page is not present in the file, then auditors will look for a “wet” signature.

2.8.2 RESIDENT SERVICES SOFTWARE

If an owner/agent uses resident services software for an ADOH-monitored project, the owner/agent is still responsible for ensuring that any forms conform to compliance requirements (such as those related to HOTMA) in effect at the time of the certification. Owners/agents must use the ADOH TIC in conjunction with the Asset Self-Certification form for move-in’s & recertification’s. The forms can be found on the ADOH website at https://housing.az.gov/documents-links/forms/rental-compliance-monitoring. The owner/agent is responsible for ensuring that the tenant files are following IRS and/or HUD rules and regulations. The property is responsible for implementing HOTMA effective 1/1/2024. All programs are required to be fully compliant by 1/1/2026, but until then must be “as compliant as possible”.

To support certifications that were signed electronically, please attach the “electronic signature page” generated by your services software and place it directly behind the TIC. If this is not present in the file, auditors will look for a “wet” signature.

2.8.3 STORAGE OF RESIDENT FILES/ RECORDS RETENTION

Owners/agents may store resident files electronically as long as the electronic storage system satisfies the requirements of the IRS Revenue Procedure 97-22, Rev. Ruling 2004-82, and HUD Notice H-2020-10 or updated versions of these documents. Resident files must be made available to ADOH during monitoring visits.

2.9 NON-COMPLIANCE

2.9.1 NOTIFICATION TO OWNER

ADOH will provide written notice of non-compliance to the owner if:

1. The annual tenant events haven’t been entered into HDS NextGen and the current utility allowance schedule is not received by the due date.

2. ADOH finds a project out of compliance with the provisions of Section 42 of the Code or ADOH policies through physical inspection, resident file review, tenant complaint, or any other means.

2.9.2 CORRECTION PERIODS

1. Annual Report – If an owner fails to submit an Annual Report by the deadline or submits an incomplete Annual Report, then the owner/agent must submit a complete Annual Report to ADOH within 30 days from the date of receiving written notice from ADOH.

2. Other Noncompliance – If ADOH determines a project is out of compliance with Section 42 of the Code or ADOH policies, then the owner must bring the project back into compliance within 30 days from the date of notification by ADOH.

3. Correction Period – Failure to bring a project back into compliance within 90 days of receiving written notice will result in the property being deemed non-compliant. At its discretion, ADOH may extend the 90-day correction period for good cause by up to 180 days.

2.9.3 NOTIFICATION TO THE IRS

ADOH will file IRS Form 8823, “Low-Income Housing Credit Agencies Report of Noncompliance,” with the IRS no later than 45 days after the end of the correction period (including any extensions) and no earlier than the end of such period.

ADOH will file a Form 8823 regardless of whether the noncompliance issue(s) have been corrected. The Form 8823 will explain the nature of the noncompliance and state whether the noncompliance has been corrected. Any change in either the applicable fraction or eligible basis that results in a decrease in the qualified basis of the project is a type of noncompliance that must be reported to the IRS. Should a building go entirely out of compliance (meaning that the owner cannot bring the property back into compliance within the correction period, including any extensions), the owner must inform ADOH in writing. In this case, ADOH will notify the IRS one time only.

Owners are responsible for ensuring their projects remain in compliance. Continued compliance is necessary to preserve and use Credits.

2.9.4 MONITORING FEES

Compliance fees for each property are set fees based upon the guidelines described in the QAP that was in effect the year the property applied for Credits. Once set for a property, compliance fees do not change. Owners should refer to the applicable QAP and/or LURA to determine the compliance fees for a given project. Compliance fees are due annually due on March 15th. ADOH assesses a $100 late fee for every 30days that an owner is delinquent in paying the monitoring fee after March 15th. Please note, ADOH no longer sends out invoices regarding the compliance monitoring fee. The invoice can be found on the ADOH website under “Housing Invoices.”

2.10 EXTENDED USE

Developments which have entered into an Extended Use Agreement, must comply with eligibility requirements for an “extended use period.” The extended use period is either an additional 15 years beyond the 15-year compliance period (a total of 30 years), or the date specified in the Extended Use Agreement, whichever is longer.

Earlier termination of the extended use period is provided for under certain circumstances in the Code. However, if a development received ranking points for delaying or waiving early termination, or if the development otherwise delayed or waived early termination as part of the application process, the owner will be bound by this election as provided in the Extended Use Agreement.

2.10.1 REPORTING REQUIREMENTS DURING THE EXTENDED USE PERIOD

During the Extended Use Period, owners/agents must continue to:

• Submit an Annual Report by March 15th for every year of the extended use period.
• Pay the annual compliance monitoring fee by March 15th
• Annually enter all tenant events in HDS NextGen by March 15th.
• Update utility allowances annually by March 15th.

2.10.2 RECORD RETENTION REQUIREMENTS DURING THE EXTENDED USE PERIOD

During the Extended Use Period, owners/agents must continue to retain tenant move-in files for a minimum of six years from the date of move-in.

2.10.3 COMPLIANCE REQUIREMENTS DURING THE EXTENDED USE PERIOD

During the Extended Use Period, ADOH will conduct physical inspections and resident file inspections at least once every three years. ADOH reserves the right to inspect more frequently at its discretion.

During the Extended Use Period:

• All tax credit units must remain rent & income restricted at the set-asides agreed upon in the Final Application and recorded Extended Use Agreement (e.g., 30%, 40%, 50%, or 60%). However, any HOME/SHTF/NHTF/NSP assisted units must remain both rent and income restricted at the required set aside for those programs.
• Move-in files must contain third-party verification of income. Additionally, if new members are added to a tenant family after initial move-in, third-party verification of income for the new member(s) only is required.
• Owners/agents must continue to follow the full-time student rule.
• Management must continue to list the property in the housingsearch.az.gov online housing search database.
• All Fair Housing, VAWA, and other nondiscrimination requirements continue to apply.
• All other rules and requirements of this manual continue to apply, unless specifically waived or modified in the list above.

2.10.4 NON-COMPLIANCE DURING EXTENDED USE PERIOD

• ADOH may enforce the recoded Extended Use Agreement through all applicable legal remedies.
• The owners, general partners, and/or management agents will be considered not in good standing (out of compliance) with ADOH and may be suspended and disallowed from participating in future tax credit applications or other ADOH programs until all outstanding

non-compliance has been corrected and supporting documentation has been submitted, reviewed, accepted, and a clear letter is issued.

2.10 QUALIFIED CONTRACT

At any time after the 14th year of the compliance period has ended, unless delayed or waived, the owner of a LIHTC development may contact ADOH (Asset Management) and request that the agency attempt to find a buyer for the property at a specified price as permitted under Section 24 of the Code. During the deregulation period following a qualified contract effort, the owner must still comply with all terms and conditions of the LURA, partial release, and/or any other applicable regulations or law. (See the Asset Management Handbook for additional information.)

LIHTC program requirements are contained in Section 42 of the Code and the Omnibus Budget Reconciliation Acts of 1989, 1990, 1993 and 2018. Additionally, the IRS publishes ongoing basis revenue notices, rulings, regulations, and procedures that clarify and/or expand on the law. The following highlights some of the Code provisions that directly affect project compliance. It is not a complete listing of compliance regulations.

3.1 MINIMUM LIHTC SET-ASIDE ELECTION

Owners must make an irrevocable election of the minimum set-aside of low income units no later than the date the credits are claimed for the first year. (See Form 8609 Line 10c). Owners must make one of the following elections:

A. 20-50 Test. At least 20 percent of available rental units in the project must be rented to families with incomes not exceeding the 50 percent MTSP Income Limit adjusted for family size.

B. 40-60 Test. At least 40 percent of available rental units in the project must be rented to families with incomes not exceeding the 60 percent MTSP Income Limit adjusted for family size.

C. Average Income Test. The average income test is only available for elections made for first year credits starting after March 23, 2018. The definition of “low income” at the property includes units designated in 10% increments – 20, 30, 40, 50, 60, 70, or 80% MTSP. These designations must average 60% MTSP. A minimum of 40% of a project’s units must meet the designation assigned to each unit, and these must average no more than 60% continually to meet the minimum test.

Buildings receiving tax credits must meet the minimum set-aside no later than the year the project is placed in service or, if credits are deferred, the following year in which the building is placed in service.

The minimum set-aside must be met on a project basis (project is defined by the election made by the owner on IRS Form 8609 Part II, Line 8b). Therefore, if each building is its own project, then the minimum set-aside must be met at each building.

The set-aside is the minimum amount of units that must be reserved for low-income residents for a building to be considered a qualified low-income building and retain its tax credits. The number of units that must be reserved for qualified low-income residents is determined at the end of the first credit year and is established on a project basis.

Source – Costello Compliance/ADOH LIHTC 2025 Workshop Manual

Failure to Meet Minimum Set-Aside (8823 Guide, Category 11f)

Failure to satisfy the minimum set-aside requirement for the first year of the credit period results in the permanent loss of the entire credit.

Failure to maintain the minimum set-aside requirement for any year after the first year of the credit period will result in recapture of previously claimed credit and no allowable credit for that tax year. No low-income housing credit is allowable until the minimum set-aside is restored for a subsequent tax year.

3.1.1 AVERAGE INCOME MINIMUM SET ASIDE

Under 26 C.F.R. §§ 1.42-19 and 1.42-19T, a project (as defined by the election on Form 8609 Line 8b) with an Average Income Test minimum set-aside election meets the minimum set-aside test if at least 40% of the total units in the project constitute a “qualified group of units.” To be considered a “qualified group of units”:

A. Each unit in the group must be a low-income unit (i.e., must be occupied by an eligible family, properly rent-restricted, and suitable for occupancy); and

B. The owner must designate units at the various imputed income and rent limits in order to demonstrate that the unit mix will result in a qualifying group of units that does not exceed 60% MTSP. Possible imputed income and rent limit designations under the Average Income Test are 20%, 30%, 40%, 50%, 60%, 70%, or 80% MTSP. Other designations are not allowed. A project is not required to have units designated at each of these various limits, as long as the average imputed income limitation for the qualified group is at or below 60% MTSP. The average is calculated based on the

MTSP designation of the unit, not on the actual income of the family residing in the unit. For example, if a unit is designated as a 40% MTSP unit and the family moving into the unit is at 35% MTSP, for purposes of calculating the average, this unit is considered 40% MTSP.

To be included in a building’s Applicable Fraction, a unit must (1) be in that particular building and

(2) be part of the qualified group of units for the project. The average income must be met on a project-level, not on a building-by-building basis.

The following policies apply to projects using the Average Income Test:

• MTSP designations are allowed to float between units within the project (i.e., a particular unit is not locked into a specific MTSP level), but the total unit mix must be maintained as agreed upon in the Application and as recorded in the Extended Use Agreement. The number of units agreed upon for each MTSP level must be maintained, with the exception that ADOH may allow and approve changes if needed to resolve noncompliance, address civil rights laws, or for other reasons allowed for in IRS AIT regulations.
• Owners “designate” a unit by (1) recording the MTSP level on the TIC in the file and (2) reported through HDS NextGen as part of the Annual Report.
• If a current qualified tenant transfers to another vacant unit in the project, the units swap MTSP designations.
• The income and rent restriction on a unit must match. For example, a unit considered 40% MTSP must be rented to a family at or below the 40% MTSP income limit and gross rent must be at or below the 40% rent limit.
• A 100% tax credit project that has elected the Average Income Test can still perform a Self-Certification of income at recertifications.
• If a project requires recertification and the family’s income has increased at time of recertification, ADOH will continue to use the MTSP level the family initially qualified under at time of move-in to calculate the Average Income Test, as long as the unit remains restricted at that rent level. The unit is not “redesignated” due to income increases at recertification.
• ADOH allows Average Income Test projects to include market rate units, unless prohibited by the project’s QAP. At least 40% of the units in the project must be tax credit units. Any market rate units are excluded from the average income calculation and are not included in the qualifying group of units.
• ADOH may allow owners to make reasonable corrections to restore compliance with Average Income Test requirements. Such corrections may include re-designation of units or adding or removing units from the qualifying group of units. ADOH may consider all acceptable reasoning outlined in Section (F) (3) of the Final and Temporary regulations published October 7, 2022 and/or any subsequent revision to those allowances.
• If an issue is discovered and corrected within the taxable year that the problem occurs, the owner may correct the issue to ensure that there is a qualifying group of units and that the minimum set-aside test is met by the end of the taxable year.
• If an issue is not discovered and corrected within the taxable year that the problem occurs, owners must make retroactive corrections to designations within 180 days of discovery of the issue by the owner or ADOH. If discovered by the owner, then the owner must immediately inform ADOH of the issue and suggested correction.

Please visit the ADOH Website under Trainings & Events as we offer Average Income as a “Special Focus Topic” in one of our LIHTC Workshops.

3.2 MAXIMUM ANNUAL TAX CREDIT FORMULA

The credit amount allocated to each building in a project is calculated on the following criteria:

Eligible Basis x Applicable Fraction = Qualified Basis Qualified Basis x Applicable Credit % Form 8609 line ..7 … 8a 6

Since the applicable fraction is not provided on Form 8609, the mathematical equation that will produce the applicable fraction is:

Qualified basis (8a) / Eligible Basis (7) = The Applicable Fraction

3.2.1 ELIGIBLE BASIS

The eligible basis applicable to a building includes costs incurred concerning the construction, rehabilitation, or acquisition of the property, minus non-depreciable costs such as land and certain other excluded items such as federal grants and some soft costs. The eligible basis is calculated as part of the final credit allocation (issuance of IRS Form 8609) and re-tested on the last day of each taxable year of the building’s compliance period. Although the owner apportions the amount of eligible basis for each building on Allocation Certification Requests to ADOH, total project basis will be limited by the total amount of credits that ADOH actually allocated to the project.

In calculating the credit amount for each building, ADOH may adjust the owner’s eligible basis apportionment per building so as not to exceed the maximum credit amount allocated to the project.

3.2.2 APPLICABLE FRACTION

The applicable fraction is the percentage of a building that is treated as low-income use and generally eligible for LIHTCs. It is assigned to a building at the time of final credit allocation (issuance of IRS Form 8609) and re-tested on the last day of each taxable year of the building’s compliance period. This fraction is defined in Section 42(c)(1)(B) as the lesser of:

• Low-income units to total units (whether or not occupied) in a building; or
• Total rental residential floor space of low-income units to total rental residential floor space of total units (whether or not occupied) in a building.

3.2.3 QUALIFIED BASIS

The qualified basis equals the fraction of the cost of the housing project rented to tenants meeting the income tests. The qualified basis is calculated by multiplying the eligible basis by the applicable fraction (See Section 3.2.2). Any change in either the applicable fraction or eligible basis that results in a decrease in the qualified basis of the project is noncompliance, which ADOH will report to the IRS.

3.2.4 APPLICABLE CREDIT PERCENTAGE

The qualified basis is multiplied by the applicable credit percentage to calculate the maximum annual tax credit that can be claimed for a building. The two tax credit categories known are 4% credits and 9% credits.

3.2.5 EMPLOYEE UNITS

Under IRS Revenue Ruling 92-61, an employee unit may be withdrawn from the applicable fraction (on a 100% LIHTC building), but the applicable fraction will remain 100% and the unit will be considered “reasonably required by the project.” The employee does not have to be income qualified, and the unit is not monitored. This unit may later be converted to a qualified unit and rented to an income-qualified family (not an employee). The owner must inform ADOH if it chooses to consider the unit an income-qualified unit.

Note: Owners may apply IRS Revenue Ruling 92-61 to properties that were placed in service prior to September 9, 1992, or received an allocation of credit prior to September 9, 1992, by filing amended returns for the period. ADOH recommends owners seek advice from legal counsel. IRS Revenue Ruling 92-61 allows only a resident manager’s unit to be considered “reasonably required” by the property. However, IRS private letter rulings 9330013 and 9538015, and the 8823 Guide allow both a maintenance person’s unit and a security officer’s unit. An owner may still have to show on an audit that the security officer’s presence is “reasonably required.” The IRS reviewed HUD’s definition of a security unit prior to issuing ruling 9538015. If further clarification is required, please contact ADOH or seek legal counsel.

Please review the project’s QAP for reasonable guidelines to follow regarding managers, maintenance, and security units.

Changes in the use of an employee unit must be communicated to ADOH prior to implementation. ADOH does not prohibit rent charges to employee units.

3.3 MAXIMUM INCOME LIMITS

Income limits for qualifying residents depend on the minimum set-aside of low-income units that the owner has chosen. Qualifying residents in projects operating under the 20-50 Test may not have incomes exceeding the 50 percent of the MTSP income limit adjusted for family size. Qualifying residents in projects operating under the 40-60 Test may not have income exceeding 60 percent of the MTSP adjusted for family size. Qualifying residents in projects operating under the Average Income Test may not have incomes exceeding 80% of the MTSP, and the project must average 60% of the MTSP. These averages may be further limited by the QAP.

For Average Income Test projects (per minimum set-aside selection), the income and rent restrictions must match on all units.

In addition, projects competing for tax credits in Arizona often commit to set-asides of low-income units at lower income levels, for example 50, 40, and 30% of MTSP adjusted for family size. These are contractual commitments recorded in the project’s Carryover Agreement and LURA and monitored regularly by ADOH.

HUD publishes MTSP income information for Arizona, which is broken down into local areas such as county or metropolitan areas on an annual basis. ADOH publishes annual income limits and corresponding rent limits on the ADOH Website and announces income and rent limits via Information Bulletin. It is, however, the owner’s responsibility to obtain the new limits each year. Owners may not anticipate increases in income limits and corresponding rents. Limits will remain in effect until new annual limits are officially published by HUD each year and in accordance with IRS Ruling 94-57. Owners may rely on previously issued income limits for 45 days after new income limits have been released.

NOTE: Once a property places a building in service, it selects its first income limits from HUD’s table for its county. From that point on, the income (and rent) limits used will never go down. If the published limits go down in a future year, the property will stay at the highest limits that have applied to the property since it placed in service (or since 2008 for older properties). Since HERA, income limits are “held harmless” at an individual property level in this manner.

(See the “Income Limit Selection Tool” below.)

3.4 MAXIMUM RENT LIMITS

LIHTC units are rent-restricted based on the rent limits published annually by HUD. ADOH publishes annual rent limits on the ADOH Website and announces income and rent limits via Information Bulletin. It is, however, the owner’s responsibility to verify its accuracy, not ADOH. ADOH releases separate sets of rent limits as per HUD and program requirements. The released rent limit charts are for the LIHTC program, HOME program, National–HTF program, NSP, and the State-HTF program.

The gross rent charged by the owner/agent must comply with the owner’s election of the minimum set-aside of low-income units and the owner’s commitment to set-asides at lower income levels (50, 40, 30, and 20 percent of MTSP).

A. For projects receiving a Credit allocation after December 31, 1989 (“Post-1989 projects”), gross rents, including utilities, are based on unit size rather than family size and may not exceed 30 percent of the MTSP for an imputed family size.

3.4.1 CALCULATING LIHTC RENT LIMITS

LIHTC units that received a Credit allocation after December 31, 1989, are rent-restricted based on an imputed family size.

• If a unit does not have a separate bedroom (i.e., studio/zero bedroom), then the imputed family size is one person.
• If a unit has one or more separate bedrooms, then the imputed family size is 1.5 persons occupying each bedroom.

The maximum gross rent is 30% of the applicable income limit for the imputed family size. For example, a one-bedroom unit is 30% of a project’s 1.5-person income limit, calculated by averaging the one- and two-person income limits. Note: Averaging is necessary whenever the number of persons deemed to occupy the unit is not a whole number, which happens with odd-numbers of bedrooms.

(Calculation based on 2025 MTSP Limits for Maricopa County)

1-Bedroom Unit / 40/60 Minimum Set Aside, 1-person (60%) Income Limit =$43,200 / 2-person (60%) Income Limit =$49,320 ($43,200 + $49,320)/2

$92,520 /2 = $46,260 (=60% income limit for 1.5 persons)

$46,260 x30% =$13,878

$13,878/12 months = $1,156.00 (rounded down)

As another example, a two-bedroom unit is 30% of a project’s three-person income limit. (2 bedrooms x1.5 persons =3 persons)

3-person (60%) Income Limit =$55,560

$55,560 x30 =$16,668 $16,668/12 months= $1,389

A 3-Bedroom unit is 30% of a project’s income limit for 4.5 persons, calculated by averaging the four and five person income limits. (3 bedrooms x1.5 persons = 4.5 persons)

3.5 GROSS RENT FLOOR

The gross rent floor establishes a minimum rent for project. Income limits are based on buildings placed in service dates. The gross rent floor is based on the owner’s election of the gross rent amount on the date of either:

A. Credit allocation or

B. Placed in service date.

The election must be made no later than the placed in service date as income limits start to apply to a project when it is placed in service. (See Revenue Procedure 94-57 for more information).

3.6 RURAL AND “HERA SPECIAL” INCOME LIMITS

Projects in are subject to Rural or Hera Special income limits if they are located in a county that either:

A. Had its income limits frozen under HUD “hold harmless” policies prior to 2008, or;

B. Are in rural areas that have income limits that are less than the National Non-Metropolitan limit (note: the Rural Limits are only available to 9% (non-bond-funded) projects). The process of selecting limits is now considerably more complex. The flow chart above provides a method for selecting the correct limits. For additional guidance on the applicability of HERA special income limits, see Low Income Housing Credit Newsletter Issue #35 and the follow-up article in Issue #47. ((The flow chart above was designed by Costello Compliance).

3.7 HOLD HARMLESS

HERA amended Section 42 of the Code to include a “hold-harmless” policy for income and rent limits. According to the hold harmless provision, the income and rent limits for a particular project (as defined by the 8609 Line 8b election) will never decrease for any calendar year after 2008, even if there is a decrease in the HUD published limits for the county in which the project is located. However, a project is never eligible to use a set of limits if it was not in-service during the time those limits were in effect. A multiple building project is considered placed-in-service on the date the first building in that project was placed in service.

Therefore, income and rent limits are not based solely on the county in which a development is located. Instead, limits are project-specific based on the placed-in-service date. If buildings within the same development are considered separate projects (i.e., if Line 8b of the 8609 is marked “no”), then each building may have different sets of limits based on their different placed-in-service dates. Even if the multiple building project election is marked “yes,” separate phases are always considered different projects and are may have different sets of income and rent limits. A project that places in service during the 45-day implementation period after the release of a new set of income and rent limits may rely on either set of limits (the old or new) for purposes of determining

the gross rent floor and/or hold-harmless limits that will apply to the property. See LIHTC Newsletters #47, 48, and 50 for more information regarding income limits.

3.8 RENTAL ASSISTANCE PAYMENTS

Gross rent does not include any rental assistance payments (tenant-based or project-based) made to the owner to subsidize the tenants’ rent, including Section 8 Housing Choice Vouchers or Project Based Vouchers (“PBV”), Section 8 Project Based Rental Assistance (PBRA), or any comparable federal, state, or local government rental assistance program (including Continuum of Care rental assistance) to a unit or its occupants. The gross rent limit applies only to payments made directly by the tenant.

Example 1 from 8823 Guide - Family Portion of Rent is Below Limit A Section 8 family moved into a unit on January 1, 2000; the maximum LIHC gross rent is $500 and market rate is $600. Family pays $200 and the assistance (Section 8) pays $400; the total rent is $600. There is no noncompliance since the family portion of rent is below the maximum LIHC rent allowed. The portion of the rent paid by Section 8 families can exceed the tax credit rent limit as long as the owner receives a Section 8 assistance payment on behalf of the family and the rent limit is exceeded due to Section 8 requirements for calculating the family rent portion. If no subsidy is provided, the family may not pay more than the tax credit rent limit allows. The same rule applies for other federal rental assistance programs, including but not limited to Continuum of Care rental assistance.

Example 2 from 8823 Guide - Tenant’s Portion of Rent Exceeds Rent Limit A Section 8 family with an annual income of $18,000 applies for an LIHC unit for which the rent is restricted to $500 and for which the market rent is $750. Assistance will pay a maximum of $500, and the applicant’s portion is $600 (40% of income). Since the applicant is required to pay $600, Section 8 will pay $150. There is no noncompliance. Note: This example reflects HUD’s requirement under the Section 8 housing choice program. The family share may not exceed 40 percent of the family’s monthly adjusted income when the family initially moves into the unit or signs the first assisted lease for a unit.

For tenants with tenant-based Housing Choice Vouchers, a copy of the original Housing Assistance Payment (“HAP”) Contract and the current HAP Amendment from the Public Housing Authority (“PHA”) or a copy of the current HUD Form 50058 must be kept in the household’s tax credit file in order to verify the Section 8 rental assistance received. For tenants residing in units with Section 8 Tenant Based Rental Assistance (“TBRA”) or PBV, the current HUD Form 50058 showing the amount of rental assistance must be included in the file. For tenants residing in units with Section 8 PBRA, the current HUD Form 50059 showing the amount of rental assistance must be included in the file.

3.8.1 RURAL DEVELOPMENT RENTS (RD)

Gross Rent does not include any rental payment to the owner of the unit to the extent such owner pays an equivalent amount to the USDA Rural Housing Service under Section 515 of the Housing Act of 1949. As long as the owner pays back the overage amount (above LIHTC limits) to Rural Development, that unit is considered in compliance.

Example (Rent Above Limit):

The maximum LIHTC gross rent is $500 (tenant paid portion plus utility allowance) and the family’s calculated rent under Rural Development regulations is $650, which the owner charges. The owner provides documentation that the $150 above the tax credit limit has been remitted directly to Rural Development. The unit is in compliance.

3.9 OPTIONAL RESIDENT SERVICES

Owners may charge fees for additional services if payment for the services is not required as a condition of occupancy. To be considered optional, another option must be available. For example, an owner may charge residents for meals served in a dining facility if use of the facility is not required, and each unit in the property includes a fully functional kitchen. In this case, a practical alternative exists for tenants to obtain meals other than from the dining facility, and payment for the meals in the common dining facility is not required as a condition of occupancy. Similar treatment is required for other optional services such as transportation, laundry and cleaning, recreation, and health care.

3.10 CHARGES FOR FACILITIES

Owners may charge fees for the use of facilities, (e.g., community rooms, swimming pools, garages and carports, washers and dryers), if the cost of the facilities was not included in the eligible basis of the buildings(s) in the project.

3.11 REDUCING OR INCREASING RENTS

If it is necessary to reduce rents as a result of new utility allowances, the residents’ rents should be reduced immediately. Generally, owners/agents are not required to lower the gross rents below the initially permitted maximum rent (the “gross rent floor”) established in the carryover allocation or at placed-in-service, at the owner’s election. Normally, rents will not be increased until the beginning of a new lease term, unless otherwise specified in the current lease.

The actual rent charged to the resident cannot exceed the gross rent from the current income/rent table minus the utility allowance. (See Section 3.12.)

Owners/agents may only increase rents within LIHTC income/rent limits and if permitted under Arizona Landlord/Tenant law.

Unless otherwise noted in the lease, and owner/agent may only make changes to rent during lease renewal. Owners/agents must communicate any rent increase as owner-imposed, and they should not characterize rent increases as mandates under IRS, HUD or ADOH rules or regulations. Failure to communicate rent increases in the correct manner is non-compliance that requires correction by providing a notice that correctly characterizes rent increases as owner-imposed to all affected units. NOTE: For any questions regarding rent increase or reduction procedures, owners/agents should seek advice from legal counsel.

3.12 UTILITY ALLOWANCE

Utility allowances are determined according to program requirements set forth in IRS Regulation 1.42-10. In addition, ADOH requires owners/agents to verify utility allowances used to calculate rents at least one time during each calendar year. The deadline to conduct the utility allowance review is the end of each calendar year, not twelve months from the last review.

If a project has just been placed in service, after the utility allowance is first established, the owner/agent is not required to review the utility allowance until the earlier of either (1) the building being 90% occupied for 90 consecutive days or (2) the end of the first year of the credit period. The utility allowance rule for LIHTC properties is a building rule. The gross rent includes an estimated allowance for tenant-paid utilities. Utilities include heating, air conditioning, water heating, cooking other electricity, water, sewer, oil, gas, and trash, if applicable. Utilities do not include telephone, cable TV, internet or other optional service costs. If all utilities are included in the family’s gross rent payment, a utility allowance is not required.

Owners/agents must establish the correct utility allowance for all programs that apply to a project. Carefully review for accuracy of the utility allowance and follow Agency guidance pertaining to rounding and IRS regulations regarding implementation of new utility allowances. If calculations result in dollars and cents, the utility allowance must be rounded up to the next full dollar for ADOH programs. Applicable documentation must be readily available to on-site personnel and, upon request, to ADOH.

3.12.1 RURAL HOUSING SERVICES (RHS) – RURAL DEVELOPMENT (RD) -ASSISTED BUILDING

Use the applicable utility allowance as determined by RD for all LIHTC rent-restricted units in the building.

3.12.2 BUILDINGS WITH RD RESIDENTS

If any resident in a building receives RD rental assistance, use the applicable RD utility allowance for all LIHTC rent-restricted units in the building (including any units occupied by residents receiving HUD rental assistance payments).

3.12.3 HUD-REGULATED BUILDINGS

If neither a building nor any resident in the building receives RD assistance and the rents and utility allowances are regulated by HUD, such as project-based Section 8 or HOME, use the applicable HUD utility allowance for all LIHTC rent-restricted units in the building.

3.12.4 CONVENTIONAL LIHTC

For conventional LIHTC buildings, owners/agents may choose between:

a. The schedule used by the local PHA: This must be used for Housing Choice Voucher holders in LIHTC buildings where no RD, HUD, or HOME is involved and may be used by the owner for other units. These utility allowances must be implemented within 90 days of release by the PHA and the owner should check for any change with the PHA every 60 days.

b. An estimate from the utility company: any interested party (tenant, owner, or state agency) may request a written estimate cost of a utility for a unit of similar size and construction for the geographic area in which the building is located.

c. HUD’s Utility Schedule Model (“HUSM”): HUD has provided a spreadsheet designed by engineers to provide estimates that take into consideration local weather factors and actual rates in use at a property. This option is available to tax credit and HOME project owners. (https://www.huduser.gov/portal/datasets/husm/uam.html).

d. An Energy Consumption Model: engineers or qualified professionals may design software that can be used to determine a consumption utility allowance.

Options “b,” ”c,” or “d” above require a 90-day review period by both the tenants and ADOH. The owner/agent may not implement the utility allowance until 90 days after it provides ADOH and tenants the new utility allowance for review. (See 8823 Guide for non-compliance scenarios).

26 C.F.R. § 1.42-10 (c)(1)

Changes in applicable utility allowance – (1) In general. If, at any time during the building’s extended use period (as defined in section 42 (h)(6)(D)), the applicable utility allowance for units changes, the new utility allowance must be used to compute gross rents of the units due 90-days after the change (the 90-day period). For example, if rent must be lowered because a local utility company estimate is obtained that shows a higher utility cost than the otherwise applicable PHA utility allowance, the lower rent must be in effect for rent due at the end of the 90- day period. A building owner using a utility company estimate under paragraph (b)(4)(ii)(B) of this section, the HUD Utility Schedule Model under paragraph (b)(4)(ii)(D) of this section, or an energy consumption model under paragraph (b)(4)(ii)(E) of this section must submit copies of the utility estimates to the Agency that has jurisdiction over the building and make the estimates available to all tenants in the building at the beginning of the 90-day period before the utility allowances can be used in determining the gross rent of rent-restricted units. An Agency may require additional information from the owner during the 90-day period. ADOH allows the HUSM and Energy Consumption Model in addition to the RD, HUD, PHA and Utility Provider estimate options, but these may be further limited by the QAP/LURA for properties allocated tax credits in certain years.

3.13 UNIT ELIGIBILITY REQUIREMENTS

For a building to qualify for the LIHTC, the following requirements must be considered:

3.13.1 GENERAL PUBLIC USE

All eligible units must be made available to the general public and cannot be restricted to members of particular employers or organizations. Owners/agents should consider Fair Housing laws and all state and federal statutes and regulations when giving preference to special persons or groups. (See Section 3.8.)

A. Resident Selection Criteria

If the owner/agent establishes criteria for screening applicants for occupancy, then the criteria must be established in writing and outline the screening policies implemented by the owner/agent. The screening criteria must be applied equally to all applicants, including LIHTC applicants, and not violate any Fair Housing laws or federal and state statutes and regulations.

When establishing a development’s Tenant Selection Plan, an owner/agent must follow all applicable LIHTC eligibility regulations, including General Public Use, nondiscrimination requirements including Fair Housing and the VAWA, HUD guidance on criminal background checks, and applicable local occupancy standards.

B. Non-Transient Housing

LIHTC buildings may not be used for transient housing. In general, a resident is considered transient if the initial lease term is less than six months. The only exceptions to the initial six-month lease restriction are Single Room Occupancy housing, which permits units to be rented on a monthly basis, and Transitional Housing for the Homeless, which has no length of lease or minimum rental requirements.

C. Suitable for Occupancy

All units must be suitable for occupancy as determined under regulations prescribed by the Secretary of Treasury which account for health, safety and building codes. The IRS uses the HUD NSPIRE standards. The owner/agent shall certify that this requirement is met annually by use of the Owner’s Certificate of Continuing Program Compliance Form. (See HUD’s standards under NSPIRE.)

C.1 Casualty Loss

Owners/agents must report all instances of casualty loss to the ADOH Compliance Program Manager as soon as reasonably possible. This includes events such as natural disasters, fire damage, and flooding. If the loss occurs in a project that is still in its compliance period, then ADOH is mandated under Section 42 of the Code to report the loss on Form 8823 by December 31st of the year which the loss occurred. For additional information and IRS guidance on casualty loss, refer to CCA200134006, Low Income Housing Credit Newsletter Issue #35 May 2009, and Newsletter Issue #43 February 2011.

3.13.2 STUDENT ELIGIBILITY

A full-time student is defined as any individual who attends an educational organization, including elementary, junior or senior high school or an institute of higher learning (e.g. colleges, universities, and technical, trade and mechanical schools) full-time all or parts of any five months of a year (the months do not have to be consecutive). If the student attended at least one day in a month, that month is counted. The full-time vs. part-time student determination is based on the criteria used by the school they attend.

A unit is not considered to be occupied by low-income individuals if all the occupants of such unit are full-time students and none of the occupants meet an exception below. Students may be eligible to live at the property, but the unit will not qualify as a LIHTC unit.

However, full-time students are eligible LIHTC residents if one of the following five student exceptions applies:

A. Any adult family member is married and entitled to file a joint tax return. A person qualifies if they are legally married under any state’s law. This can be verified by a tax return or a marriage certificate. (See 8823 Guide)

“Any one” adult who is married and entitled to file a joint tax return qualifies a family, even if other members are not married.

B. An adult family member is a single parent with minor child(ren). The adult single parent is not claimed on anyone outside the family’s tax return and the child is only claimed by one of their parents (even if the other parent is not in the household). This is verified by a tax return or a signed affidavit stating the two items above. Per written informal IRS guidance, one parent with a dependent child qualifies a family under the single parent dependent child exception, even if there are other non-parent and non-child members.

C. At least one member of the family receives assistance under Title IV of the Social Security Act. This included federal TANF (“cash assistance” in Arizona), adoption assistance, and foster assistance programs.

D. At least one member of the family is enrolled in a job training program that receives assistance under a program similar to the former Job Training Partnership Act (JTPA). To be “similar” to JTPA, the program must (1) receive federal, state, or local government funding and (2) have a mission statement like the one for the JTPA program. These requirements can be verified with the administrator of the training program. Note: The Workforce Investment Act training programs have replaced JTPA and meet the JTPA LIHTC student exception.

E. Family includes a member who formerly received foster care assistance (a former foster child or adult). This can be verified by the welfare agency that placed the former foster member into care.

A family with an unborn child does not trigger the full-time student rule since at least one family member (the unborn child) is not a full-time student.

Student status must be verified at move-in and annually thereafter.

Source: Costello Compliance/ADOH LIHTC Workshop Manual

3.13.3 FAIR HOUSING

Fair Housing is the right of all people to be free from discrimination based on race, color, national origin, religion, sex, disability and familial status (protected classes under the Fair Housing Act). The Fair Housing Act applies to LIHTC properties just as it applies to any other type of housing. Owners/agents shall not discriminate in the provision of housing on the basis of the seven protected classes under the Fair Housing Act. Nondiscrimination means that owners cannot refuse to rent to someone or treat them differently in the rental process, fail to allow reasonable accommodations or modifications, evict, or otherwise treat a tenant or applicant in a discriminatory way based solely on that person’s inclusion in a protected class.

Owners may not engage in steering, segregation, false denial of availability, denial of access to services or amenities, discriminatory advertising, or retaliation against individuals that make fair housing complaints.

All staff working at a LIHTC property (e.g., leasing staff, site manager, service coordinator, and maintenance staff) must understand and comply with the Fair Housing Act. It is considered a best practice for Fair Housing training to be a mandatory annual requirement for all staff members. A LIHTC project may also be subject to the Americans with Disabilities Act (“ADA”) and/or Section 504 of the Rehabilitation Act of 1973, depending on other funding sources used at the project. Generally, the ADA will apply to the public areas of the project, such as the rental office, or any commercial space the project may have. If the project receives federal financial assistance, it is subject to the requirements of Section 504. Please review the QAP – Design standards for the project. ADOH does not provide legal civil rights advice for specific situations for properties that it monitors. Owners/agents with questions should seek competent legal counsel.

3.13.4 TRANSFER OF EXISTING RESIDENTS TO OTHER SET-ASIDE UNITS

For communities in which each building is treated as its own project, as defined on IRS Form 8609, line 8b, a transfer from one building to another must always be treated as a new move-in. The family must qualify for the new unit based on the current applicable income limits. The IRS and ADOH allow transfers between buildings within a project, as defined by Form 8609, line 8b, for families that are below the 140% limit if the unit is subject to LIHTC income recertification. Owners/agents may use the income eligibility documents from the most recent recertification to show the family is under the 140% limit. When transfers occur within a project, the family takes their status with them to the new unit and their old unit takes on the former status of the new unit. Thus, the units “swap” status. The original move-in date to the project should be retained on the TIC after a transfer.

Exception: Transfers Within a Building

Residents may move from one unit to another within the same building and the units “swap” status without regard to current income. Similarly, transfers between buildings in a project are also allowed at 100% LIHTC projects for units not subject to income recertification without regard for current income. Owners/agents must document both the old and the new file with transfer date information and the residents’ eligibility status. The original move-in date to the project should be retained on the TIC after a transfer.

3.13.5 VACANT UNITS VS. EMPTY UNITS

When a unit formerly occupied by low-income individuals becomes vacant, it may continue to be treated as occupied by a qualified low-income individual for purposes of the set-aside requirement (as well as for determining qualified basis) only if reasonable attempts are made to rent the unit. Owners/agents must ensure vacant LIHTC units are in rent ready condition within 30 days from the date vacated. “Rent ready” means that maintenance has been completed, the unit has been cleaned, all appliances are in the unit in their proper location, and a tenant could move in. Market units may be rented before LIHTC units as long as reasonable attempts are made to market LIHTC units. Efforts to market LIHTC units should be maintained in a file.

8823 Guide – (Category 11j (A.1) Reasonable Attempts)

(1) What constitutes reasonable attempts to rent a vacant unit is based on facts and circumstances, and may differ from project to project depending on factors such as the size and location of the project, tenant turnover rates, and market conditions. Also, the different advertising methods that are accessible to owners and prospective tenants would affect what would be considered reasonable.

Units cannot be left permanently vacant and still satisfy the LIHTC program requirements. Vacant units must remain suitable for occupancy and cannot be cannibalized for parts. ADOH reserves the right to request additional information from an owner/agent, including with regard to the project’s marketing efforts, for any vacancies that are noted during a physical inspection, file review, or Annual Report review, especially if a project evidences a high number of vacancies or when a unit has been vacant for longer than 90 days.

Units that have never been occupied (“Empty Units”) cannot be counted as low-income units, but must be included in the total units count for purposes of determining the applicable fraction. Owners/agents are not permitted to transfer existing tenants to Empty Units for purposes of meeting the minimum set-aside or applicable fraction.

3.13.6 AVAILABLE UNIT RULE

If the family income of residents in a low-income unit increases above the maximum allowable income limits, the unit will still qualify as a low-income unit as long as the residents initially qualified and the unit remains rent restricted.

If the family income of residents in a low-income unit increases above 140 percent of the current maximum allowable income limits, the next available unit of comparable or smaller size in the building must be rented to a family having a qualifying income. This rule must be followed until the correct mix of tax credit units is restored, not counting the over 140% units. For income average test properties, the limit is 140% of the 60% MTSP limit for units designated 20% to 60%. For 70% and 80% designated units, the limit is 140% of the 70% and 80% MTSP limit, respectively. LIHTC units may only be rented to families at the designation assigned to the unit. Only market units are subject to resignation to the MTSP designation of a comparable over-income LIHTC unit. Since all units at a 100% LIHTC project are intended to be rented to qualified families, this rule requires that owners demonstrate due diligence with renting units to avoid errors. The 140% limit is irrelevant for the federal Available Unit Rule at 100% projects.

3.13.7 DEEP-TARGET UNITS

Federal guidelines permit the annual income of residents in LIHTC units to rise above initial move-in limits, but administrative regulations on deep set-aside units are under ADOH’s jurisdiction. If a tenant in a deep set-aside unit recertifies at an income above the 140% of the current maximum allowable income limit (as adjusted for family size), the tenant should be moved up into the set-aside for which they now qualify. The swap may be handled on paper, and the tenant need not move from one unit to the other. Unlike the federal Available Unit Rule, which deals with tax credit/market rate swaps (which are handled on a building-by-building basis), set-aside swaps are to be made on a property basis. If a comparable unit in the appropriate set-aside is not immediately available, then the tenant may continue to be temporarily treated as qualifying for the set-aside unit until a comparable unit becomes available.

If the tenant’s income rises above the highest set-aside level, based on the project’s minimum set-aside, they should be moved to the highest minimum set-aside level. A determination should then be made as to whether they continue to qualify for a tax credit unit. If the tenant’s income exceeds 140% of the highest level, the federal Available Unit Rule applies.

3.14 HUD-ASSISTED RESIDENTS

The 1993 Tax Act provides that an applicant cannot be denied occupancy in a tax credit project because the applicant holds a voucher or certificate under Section 8 of the Housing Act of 1937. With regard to compliance with the LIHTC Program’s gross rent ceilings, gross rent does not include any rental assistance payments made on behalf of the resident under Section 8 of the Housing Act of 1937 or comparable rental assistance programs.

Residents receiving Section 8 assistance may be required to pay an amount of gross rent in excess of the tax credit limits due to an increase in earnings and decrease in subsidy. The Code allows an exception to the rent limits as long as the family originally qualified for a tax credit unit, is participating in a housing subsidy program, and is still receiving at least one dollar of subsidy.

3.15 DEPOSITS AND FEES

The LIHTC program permits an owner/agent to charge fully refundable security deposits. Non-refundable fees and/or deposits that are non-optional and/or considered a requirement of residency must be handled as indicated below. The IRS has clarified that a property owner is responsible for maintaining the units; therefore, a non-refundable redecoration fee, transfer fee or unit preparation fee is strictly prohibited and will be reported as non-compliance on IRS form 8823. Additionally, any fee associated with an amenity or structure included in the eligible basis is prohibited (e.g., parking lot, swimming pool, workout room, or community center). Tenants may be charged a security deposit for the use of common areas included in the eligible basis if the deposit is refundable and reasonable.

An application fee may be charged to cover the actual cost of credit/criminal report(s) obtained. It may not be in excess of the average expected out-of-pocket costs to verify whether or not a household qualifies for residency. However, an applicant or tenant cannot be charged a fee for completing documentation required by the LIHTC program (e.g. TIC, income/asset verification forms). Any permissible fees charged by a property that are non-optional must be included in the calculation when determining gross rent for a unit. These fees include, but are not limited to, required renter’s insurance (whether paid to the property owner or to a third party), parking, washer/dryer hook ups, and month to month fees.

An owner/agent may charge optional fees that are not a requirement for residency, such as monthly pet rent (except for service/support animals), cost of coin-operated washer/dryers in a laundry room, garages, or additional storage. Note: any structure included in the eligible basis may not have a fee associated with it. Always check the property’s LIHTC application, underwriting, and cost certifications to determine whether an item was included in eligible basis.

Finally, fees for non-performance of the terms of the lease agreement may be charged as they are considered optional one-time charges and not a requirement for residency. Examples include late fees, legal fees, lease termination fees, move-in concessions, or fees for actual damage caused by the household to the unit or property.

Some projects may accept online payments for rent. An optional surcharge fee may be charged to the tenant if the tenants have alternative methods of paying rent that do not include a fee (e.g., cash, money order, or check). In this circumstance, the online payment would be an optional service offered for the tenants’ convenience. The amount of the fee, as well as a list with accepted alternative methods of payment, must be disclosed to all tenants. The fee may not exceed the actual cost incurred by the owner.

3.16 GOOD CAUSE EVICTION & RENT INCREASE PROTECTIONS / DEREGULATION PERIOD

Through Revenue Ruling 2004-82, Q5, the IRS clarified that during the entire extended use period, owners of LIHTC properties are prohibited from the following actions:

• Evicting a household from a LIHTC unit, non-renewing a household, or terminating a household’s tenancy within the lease term other than for “good cause”; or
• Increasing the gross rent of a LIHTC unit in a manner not permitted by Section 42 of the Code.

The owner is responsible for determining what “good cause” is in the lease and under state and local law. Owners should consult legal counsel for further advice.

When a tenant is evicted or a lease is terminated, ADOH will look for documentation outlining the specific cause for non-renewal. It is the owner’s responsibility to document and defend the good cause for eviction if challenged in state court. Per the 8823 Guide, good cause is determined by state and local law and therefore the determination of the state court.

Deregulation Period: In the event that the extended use period terminates due to foreclosure, deed-in-lieu of foreclosure, qualified contract, or the project has reached the end of its affordability period, the protections listed above remain in place for three years following the termination or partial release of the extended use agreement.

For projects which are currently in their three-year deregulation period, the owner must comply with all terms and conditions of the LURA, Partial Release, and/or any other applicable loan documents, laws, and regulations. (See Asset Management Handbook, Partial Release Provision 2)

3.17 VIOLENCE AGAINST WOMEN ACT

On March 7, 2013, Congress and the President

reauthorized the VAWA legislation of 1994 (expanded in 2005), to include housing programs such as HOME, Rural

Development, and the LIHTC programs. VAWA was reauthorized on March 11, 2022. VAWA applies to all

federal affordable housing programs that control income

and rents. Penalties were added equivalent to those for Fair Housing violations and HUD was commissioned to open a VAWA Office. Protections were also put in place to protect people from retaliation who report VAWA crimes.

VAWA protects victims of domestic violence, dating violence, sexual assault, or stalking, as well as affiliated individuals, from being denied housing assistance or being evicted as a result of an incident of domestic violence, sexual assault, or stalking that is reported or confirmed. Please note that the protections for VAWA-covered violence apply to women and men.

3.17.1 CONFIDENTIALITY – VAWA TITLE VI, SECTION 41411(C)(4)

Because a survivor’s life can be in danger if information is disclosed about their status, personal documentation relating to VAWA must be kept confidential and may not be entered into any shared database or disclosed to any other entity. Shared databases include property management software unless it secures sensitive personally identifiable information (PII) under the Privacy Act of 1974 (5 U.S.C. § 552a) and 24 C.F.R. § 5.2007(c). There are exceptions in which sharing information outside of those who need to know within a property management company are allowed. Exceptions to this disclosure rule apply when

1. the survivor requests or consents to the disclosure, 2) the documentation is required in a bifurcation eviction proceeding, or 3) otherwise required by applicable law.

3.17.2 SUMMARY OF VAWA PROCEDURE –VAWA TITLE VI, SECTION 41411(C)

VAWA prescribes a set of actions that are triggered between an owner and an applicant or resident. These are listed below.

1. The owner takes specific negative actions. These actions can include denying an applicant occupancy or rental assistance or terminating rental assistance or eviction. These are taken as usual per the owner/agent’s normal policies and procedures. The agent will provide the applicant or resident with the VVAWA – 5380 Notice of Rights, and a 5382 Certification of Violence, which is discussed in greater detail below. Note that providing this will satisfy step 3 below.

2. Survivor explains status. Since the applicant/resident now has the Notice explaining their rights and a copy of the Certificate of Violence, they will often provide the Certification and satisfy steps 4 below immediately.

3. Owner/agent requests documentation. This request must be in writing. Again, providing the 55382 Certification of Violence will often satisfy this step, as long as accompanied by a dated letter. If the survivor does not supply the Certification immediately (steps 2 and 4), they must be given 14 business days to provide documentation. Business days do not include weekends and holidays. Depending on the circumstances, the owner/agent may, but is not required to, allow for more time. If the documentation is not provided in 14 days, the owner is under no further obligation and may proceed with the negative action.

4. Survivor provides documentation. This can include the completed 5382 Certification of Violence or other documentation that the applicant/resident may choose. VAWA is designed to allow flexibility in verification. Documentation should not be a barrier to getting a survivor the assistance that they need. Various options are mentioned in the law. Below are further details on the three major categories of documentation. The first and primary method is self-certification by the survivor.

A. Certification of violence. This is a self-affidavit and is the primary method that a survivor can use to declare their status. HUD has expressed its legal opinion that the VAWA statute only requires self-certification. There is an exception when there is/are conflicting stories from residents. When there are conflicting stories, such as when multiple residents in a unit claim to be a survivor of violence at the hand of each other, then the owner/agent can require third-party documentation. HUD considers 30 days to be a reasonable time for a survivor to provide alternative documentation. If documentation is inconclusive, HUD suggests allowing both residents to exercise their rights. An example would be allowing both to continue to get assistance in separate units. If an owner does not use the Certification supplied by HUD, VAWA says that the Victim Certification must include the survivor’s certification that they are a survivor of violence, and that the violence is a type covered by VAWA. They can do this by explaining the incident or incidents on the form. They also need to provide the name of the perpetrator of the violence, if it is known, and they feel that it is safe to do so.

B. Third-party Documentation. A survivor may document their status using a document that is signed by an employee, agent, or volunteer of a survivor service provider, an attorney, a medical or a mental health professional from whom an applicant or tenant has sought assistance relating to violence, or the effects of the abuse. The applicant or tenant must also sign this statement. The document must state under penalty of perjury that the professional believes that the incident of violence meets the requirements to be covered by VAWA.

C. Law Enforcement or other. If the owner/agent has a record of a Federal, State, tribal, territorial, or local law enforcement agency, court, or administrative agency; or at the discretion of the manager of housing, a statement or other evidence provided by an applicant or tenant. VAWA does not want a lack of documentation to be an issue that results in further harm to survivors. Great flexibility is given to use a wide variety of documentation a survivor may be able to supply.

5. Reevaluation. The owner/agent reevaluates the negative action and upholds or withdraws it.

3.17.3 VAWA – REQUIRED FORMS

HUD 5380: Notice of Occupancy Rights under VAWA. This form must be provided at the following times, along with a copy of the HUD 5382 Victim Cert: 1) at the time of initial move-in, 2) at the time of denial of tenancy, and 3) when termination/eviction notices are sent. This form must be modified and adapted from the HUD template.

HUD 5381: Model Emergency Transfer Plan. The owner/agent must create a plan specific to each project. The plan must be made available for review by tenants and by ADOH. This plan must be modified and adapted from the HUD template.

HUD 5382: Certification of Domestic Violence, Dating Violence, Sexual Assault, or Stalking (Victim Cert). This form is to be used by tenants as a self-certification form. A copy must be attached when the HUD 5380 is given to tenants. This form must be adopted as-is from the HUD form without modification of the language, which is required by the VAWA statute.

HUD 5383: Emergency Transfer Request. This form is used by tenants to request a transfer under VAWA. This form must be adopted as-is from the HUD form without modification of the language, which is required by the VAWA statute.

HUD 91067 Lease Addendum. ADOH requires a lease addendum based on this HUD form in the tenant file. The HUD 91067 can only be legally used for Section 8 PBRA properties. An addendum must be modified and adapted from the HUD form as a template for other programs monitored by ADOH. Most current forms can be found at https://www.hud.gov/vawa#VAWA-Forms

Source – Costello Compliance/ADOH LIHTC Workshop Manual

3.18 ACQUISITION /REHABILITATION/ RESYNDICATION

With aging housing, the concepts of resyndication along with acquisition/rehab credits have become more commonly used to help preserve these properties. Below are policies pertaining to each of these preservation options. Please note that an owner, investor, or syndicator may have policies in place that are stricter than federal and state requirements. ADOH highly recommends speaking with all parties before applying these policies.

3.18.1 ACQUISITION/REHAB

Acquisition and rehab occur when ownership is allocated credits to acquire and rehabilitate a previously non-LIHTC project or when an extended use period has expired or been terminated at a former LIHTC project. Note: An owner may opt not to claim acquisition credits and claim rehab credits only. Generally, the rules work the same for acquisition/rehab projects as they do for rehab-only projects. There is still an acquisition date, for instance, and this is used, though acquisition credits are not claimed.

For in-place tenants at the time of acquisition, the effective date for a tenant certification can be retroactive to the acquisition date. The IRS allows any certification done 120 days before or after acquisition to have an effective date as of the acquisition placed in-service date. This may affect when credits are claimed for these units at some properties. Household certifications that were in place as of the acquisition date but were signed after the 120 days will have an effective date as of the date of the last family adult signature. Households that move -in after acquisition will need to qualify and have an effective date as of move-in, the same as other move-ins.

Two separate certifications do not need to be completed (one for acquisition, one for completion of rehab). Both the acquisition and rehab credits are satisfied with one set of certification paperwork.

3.18.2 RESYNDICATION (SUBSEQUENT ALLOCATION OF CREDITS)

Resyndication occurs when ownership of an existing tax credit community receives a new allocation of credits to rehabilitate the community while the past LIHTC extended use period is still effective.

For these deals, ownership can choose to “grandfather” in existing residents who were qualified previously under the initial set of credits without recertification of their income. This can be done by uusing the household’s initial move in file from previously awarded credits for the new credits and then performing a new student and rent test. ADOH is creating a form for resyndication. However, in the absence of this form, a cover page can be used showing the date of the certification being used, the date that student status was verified, and the date in which the rent was compared to current max rents in effect for the new credits. This will be followed by the original qualifying TIC and supporting documents, student status test, and rent test. Ownership must ensure that the original lease either had a minimum six-month term or the family has actually resided in the project for at least six months (See IRS PLR 200044020).

Source – Costello Compliance/ADOH LIHTC Workshop Manual

3.18.3 PLACED IN SERVICE DATES (PIS)

Per IRS guidance, a LIHTC building is placed in-service when it’s ready for its intended purpose. The PIS date for a new construction LIHTC property is the date in which the building is ready for occupancy. This is usually the same as the date the building’s Certificate of Occupancy (C of O) is issued. A temporary C of O is sufficient.

An acquisition/rehab property receives two credit allocations: One to finance its acquisition and one to finance its rehabilitation. The PIS date for the acquisition credits for an occupied building is the date of acquisition. Note: If the building is not existing housing or is housing that is not suitable for occupancy at the time of acquisition, then the building is placed in service when a C of O is issued for the building.

The acquisition placed in service date is the date the ownership entity that will benefit from the credits acquires the project (based on Section 179 of the Code’s depreciation rules).

The rehabilitation placed in service date does not directly relate to occupancy. Rather, it is based on an expenditure test to determine which year credits can be claimed and when an eligible basis that can support the planned credits is met. If it is a rehab of non-housing building or a “gut” rehab, the developer will need a certificate of occupancy before they can lease their units, so the PIS date will be based on the date on the C of O. Therefore, each acquisition/rehab building has two placed in-service dates: one for acquisition and one for rehab. Each date will show up on its corresponding Form 8609.

Acquisition/rehab credits cannot be claimed until the year that the rehab is placed in-service. This means that both credits may start as early as the acquisition is placed in-service if the rehab is also placed in service that year. However, if the rehab is placed in-service in a later year, then both credits may start as of the start of the year that the rehab places in-service. For example, if a building is acquired on March 1, 2017, and the rehab is placed in-service by November 20, 2017, then both credits may be claimed starting March 1, 2017. Alternatively, if the rehab was not placed in-service until April 1, 2018, both credits may begin January 1, 2018. In both of these cases, the owner may claim credits as early as this date or defer one year. Therefore, the deferral option for properties in rehab is based on the year the rehab places in service. For new construction, once a building is placed in-service based on its C of O, credits may either be claimed starting that year, or they may be deferred for one year.

3.18.4 CERTIFICATION EFFECTIVE DATES

Please visit the ADOH Website under Trainings & Events as we offer Acquisition/Rehab/Resyndication as a “Special Focus Topic” in one of our LIHTC Workshops.

Applicants for low-income, rent-restricted units must be advised early in their initial visit to the project that there are maximum income limits which apply to the units. Management must explain to the residents that the anticipated income of all persons expecting to occupy the unit must be verified and included on an application and a Tenant Income Certification Form (TIC) prior to occupancy and that they will be required to have their eligibility status reviewed annually. The LIHTC Program requires that the determination of eligible family income be based on HUD Regulations in the Code of Federal Regulations. HUD Handbook 4350.3, Occupancy Requirements of Subsidized Multifamily Housing Programs chapter 5, as modified by the HOTMA Notice 2023-10, is a good reference guide and is readily available on the Internet at www.hudclips.org (Note: The HUD current Handbook has not been updated to reflect the HOTMA updates).

Per the IRS LIHC Newsletter #54, the 8823 Guide has not been updated to reflect HUD Handbook 4350.3 Change 4, streamlining rules, or HOTMA. Therefore, Chapter 4 of the 8823 Guide is considered significantly outdated and should not be solely used for guidance regarding income calculations and verification.

Additional information/resources regarding income eligibility:

• Housing Opportunities through Modernization Act of 2016 (HOTMA), Final Rule 02/14/2023 amending C.F.R. 24 5.609.
• HOTMA Implementation Notice H2023-10/Notice PIH 2023-27

ADOH requires LIHTC projects to be fully HOTMA compliant by January 1, 2026, but until then, they must be “as compliant as possible.” See ADOH Information Bullet 67-24.

4.1 THE APPLICATION / TENANT FILES

A fully completed application is critical to an accurate determination of resident eligibility. The information furnished on the application should be used as a tool to determine all sources of income and assets. HUD provides guidelines that the owner may want to adopt for the application process. At the time of application, it is the owner’s/agent’s responsibility to obtain sufficient information on all prospective tenants to completely process the application, determine family eligibility, and complete the TIC.

A basic tenant file must include the following and must be organized in chronological order to assist the inspector with a less time-consuming file review during an inspection:

• Move-in tenant application
• Income & asset certification questionnaire, completed at time of application. A separate questionnaire must be annually executed by each adult family member, except for recertifications using the Self-Certification TIC/Questionnaire at 100% tax credit projects.
• Asset-Self Certification Form & Worksheet. This is a mandatory form as of May 1, 2025. Complete only one form per family.
• TIC, this is a mandatory form. The TIC must be signed by each adult member of the family annually as long as the family occupies the unit. (See TIC instruction page for further information). The TIC must be signed and dated by the tenant(s); dates may not be filled in by management.
• LIHTC Student Status Self-Certification form, which must be annually completed by each adult member of the family, as well as any applicable student status verification.
• Other supporting documentation verifying the household’s eligibility.
• Initial and subsequent leases and all addendums (e.g., VAWA).
• For TBRA or PBRA assistance, provide a copy of the HAP contract or approved Rental Schedule.
• For HOME/SHTF/NHTF/NSP layered projects, provide a copy of the ADOH approved Rent Increase Request form. (A request for approval of an intended rent increase must be sent to ADOH and the rent increase can only be implemented once ADOH approval has been received.)
• Please keep the income/rent limits applicable to the certification behind the TIC. Please note the Asset-Self Certification Form & Worksheet is not required for recertifications at 100% tax credit projects where a self-certification is used. In this case, the file should include the Self-Certification TIC/Questionnaire (completed by the tenant – see instruction page), student status certifications, the new lease, and all addenda (including VAWA).

All forms must be completed in their entirety, signed, and dated. ADOH will not accept incomplete forms or forms which reflect whiteout.

To correct a document, management should draw one line through the incorrect information and write the corrected information to the side. All corrections should be dated and initialed. Corrections on forms filled out by management should be initialed by the management agent. Corrections on forms filled out by the tenant should be initialed by the tenant. Corrections to the lease must be initialed by both parties.

If management fails to obtain the necessary paperwork at time of certification, verifications can be retroactively created to document the income and assets that were in place at the time of the certification. All retroactive documents must be signed with the current date, but noted as being “true and effective” as of the actual certification effective date. The “true and effective” statement must be written on each form that is created or signed after the effective date. Neither tenants nor management are permitted to backdate documents. The recertification effective date continues to be the anniversary date of the move-in, not the date the documents were completed retroactively.

4.2 DETERMINING HOUSEHOLD AND FAMILY SIZE

Household members include all persons who consider the unit to be their primary residence for the next twelve months. Family members are counted for income limit purposes and have their income counted. Family members include:

A. Children under joint custody (present in unit 50% or more of the time) or foster care that will be returning to the unit

B. Tenants that are in the hospital or nursing home that will be returning to the unit

C. Children being adopted

D. A future roommate or spouse

E. Unborn children

F. Dependent students away at school and military family members who have a spouse or child in the unit

NOTE: People who are on active duty in the military must be counted in the family if they are the head or co-head or have a spouse or dependent in the unit. At ADOH’s discretion, there may be some cause for leniency for non-head or co-heads where children are involved. (See HUD 4350.3 Chapter 3 and 5, and 8823 Guide Chapter 4 guidance.)

Household Members Not Counted in the Family:

A. Live in Attendants (for elderly or disabled, a live in aide must never be a dependent)

B. Temporary visitors and/or guests

C. Foster children and foster adults

Per HOTMA, foster members are no longer counted as “family” members. This means that they are not counted toward income limits or have any of their income counted. Children of the family who are away in foster care and will be returning are counted as part of the family, NOT in their foster family.

4.3 FAMILY AND HOUSEHOLD MEMBERS/ INCOME BY FAMILY MEMBER TYPE

Terms Defined

Family: Everyone who lives in a unit who is counted toward the income limits. Now consistent among HUD programs. A “family member” includes “children in joint custody arrangements who are present in the unit 50% or more of the time.”

Household: The family who resides in a unit, plus any foster children or foster adults and any live-in assistant for persons with disabilities.

Foster adult: A member of the household who is 18 years or older and who meets the definition of a foster adult under state law. State-level agencies define who is considered a foster adult/child, so the classification may vary from state to state.

In general, a foster adult is unable to live independently due to a debilitating physical or mental condition and is placed with the family by an authorized placement agency or by judgement, decree, or other order of any court or competent jurisdiction.

Foster child: A member of the household who meets the definition of a foster child under state law. In general, a foster child is placed with the family by an authorized placement agency or by judgement, decree, or other order of any court of competent jurisdiction.

Foster adults/children are not considered family members and may not be included in calculations of income for eligibility and rent determination purposes. However, foster adults/children are considered household members and must be included when determining unit size or subsidy standards based on established policies.

4.3.1 WHOSE INCOME IS COUNTED? POST HOTMA

Non-family household members are listed on the TIC and their status should be clearly documented in the file. This may include welfare placement paperwork for fosters and verification of need for a live-in aid. Dependents: To restrict their earned income to the current dependent deduction, the definition of dependent is based on HUD rules. It is not required that an adult full-time student be a tax dependent.

4.4 CHANGES IN HOUSEHOLD COMPOSITION

All family members must be certified and under lease. In the event the resident in a low-income unit later wishes to have an additional person move into the unit, the following steps must be taken:

A. The new residents must complete a new application and allow for verification of income and assets as required.

B. The prospective resident’s income must be added to the current resident’s most recently certified income and a determination made as to whether the Available Unit Rule is now in effect. It also must be determined if any deeper targeting set aside must be adjusted.

C. A revised TIC must be completed and signed by all family members 18 years of age and older.

In the event a family member vacates the unit, the unit will remain in the category as originally certified. The resident file should be documented when any family member vacates the unit. The family is considered the original family as long as one member from the original family remains.

4.5 ANNUAL INFLATIONARY ADJUSTMENTS/FACTORS AND PASSBOOK SAVINGS RATE

Joint HOTMA Notice 2023-10, Attach. H

HUD intends to annually publish eight inflation-adjusted items and the passbook savings rate in a table no later than September 1. The updated values will be shared online at the HUD User website. It is the owner agent’s responsibility to ensure the applicable amounts are being applied annually.

4.6 ANNUAL INCOME (INCLUSIONS AND EXCLUSIONS)

New HOTMA Income Terms/Definitions

Earned Income: “Earned income means income or earnings from wages, tips, salaries, other employee compensation, and net income from self-employment. Earned income does not include any pension or annuity, transfer payments (meaning payments made or income received in which no goods or services are being paid for, such as welfare, social security, and governmental subsidies for certain benefits), or any cash or in-kind benefits.”

Unearned Income: “Unearned income means any annual income, as calculated under § 5.609, that is not earned income.”

Day Laborer: “An individual hired and paid one day at a time without an agreement that the individual will be hired or work again in the future.”

Contract Laborer: A contract laborer is an individual who qualifies as an independent contractor instead of an employee in accordance with the Internal Revenue Code federal income tax requirements and whose earnings are consequently subject to the self-employment tax.

In general, an individual is an independent contractor if they have the right to control or direct only the conduct of the work. For example, while instructions and route information are generally provided, third-party delivery and transportation service providers are considered independent contractors unless state law dictates otherwise. In addition, individuals considered “gig workers”, such as babysitters, landscapers, rideshare drivers, and house cleaners, typically fall into the category of independent contractor.

Seasonal Worker: A seasonal worker is defined as an individual who is: (1) hired into a short-term position (e.g., for which the customary employment period for the position is six months or fewer); and (2) the employment begins about the same time each year (such as summer or winter). Typically, the individual is hired to address seasonal demands that arise for the employer or industry. Some examples of seasonal work include employment limited to holidays or agricultural seasons. Seasonal work may include but is not limited to employment as a lifeguard, ballpark vendor, or snowplow driver.

Day laborers, contract laborers, and seasonal workers’ income from those activities, although often sporadic, does not fit HUD’s definition of “nonrecurring” and is counted as income. Prior to HOTMA, sporadic and nonrecurring income were excluded. Now, only income that is nonrecurring is excluded. Income that occurs more than once, even if sporadic, is counted unless it has a defined end and cannot be repeated.

Annual Income: The gross amount of income eminent and known to be received by all members of the family (except dependent minors) during the twelve (12) months following the date of certification or recertification. This includes Cost of Living Adjustments announced by the Social Security Administration for Social Security and VA Benefits and voter approved minimum wage increases.

4.6.1 ANNUAL INCOME INCLUSIONS

224 C.F.R. § 5.609(a)

Annual income includes:

(1) All amounts, not specifically excluded in paragraph (b) of 24 C.F.R. § 5.609, received from all sources by each member of the family who is 18 years of age or older or is the head of family or spouse of the head of family, plus unearned income by or on behalf of each dependent who is under 18 years of age, and

(2) When the value of net family assets exceeds $50,000 (which amount HUD will adjust annually per the Consumer Price Index for Urban Wage Earners and Clerical Workers) and the actual returns from a given asset cannot be calculated, imputed returns on the asset based on the current passbook savings rate, as determined by HUD.

4.6.2 ANNUAL INCOME 28+ EXCLUSIONS

224 C.F.R. § 5.609(b)

Note: Income types unchanged by HOTMA are indicated in this font.

Annual income does not include:

(1) Any imputed return on an asset when net family assets total $50,000 or less (which amount HUD will adjust annually per the Consumer Price Index for Urban Wage Earners and Clerical Workers) and no actual income from the net family assets can be determined.

(2) The following types of trust distributions:

• For an irrevocable trust or a revocable trust outside the control of the family or household excluded from the definition of net family assets in the HUD regulation § 5.603(b)

(A) Distributions of the principal or corpus of the trust; and

(B) Distributions of income from the trust when the distributions are used to pay the costs of health and medical care expenses for a minor.

• For a revocable trust under the control of the family or household, any distributions from the trust; except that any actual income earned by the trust, regardless of whether it is distributed, shall be considered income to the family at the time it is received by the trust.

(3) Earned income of children under 18 years of age.

(4) Payments received for the care of foster children or foster adults, or State or Tribal kinship or guardianship care payments.

(5) Insurance payments and settlements for personal or property losses, including but not limited to payments through health insurance, motor vehicle insurance, and workers’ compensation.

(6) Amounts received by the family that are specifically for, or in reimbursement of, the cost of health and medical care expenses for any family member.

(7) Any amounts recovered in any civil action or settlement based on a claim of malpractice, negligence, or other breach of duty owed to a family member arising out of law, that resulted in a member of the family becoming disabled.

(8) Income of a live-in aide, foster child, or foster adult as defined in §5.403 and §5.603, respectively.

(9) Student Assistance Type 1 | Any assistance under Title IV, 479B of the Higher Education Act of 1965 (HEA), as amended, is excluded from income.

Student Assistance Type 2 | Student financial assistance for tuition, books, and supplies (including supplies and equipment to support students with learning disabilities or other disabilities), room and board, and other fees required and charged to a student by an institution of higher education (as defined under Section 102 of the Higher Education Act of 1965) and, for a student who is not the head of household or spouse, the reasonable and actual costs of housing while attending the institution of higher education and not residing in an assisted unit.

(A) Student financial assistance means a grant or scholarship received from—

(1) The Federal government

(2) A State, Tribe, or local government

(3) A private foundation registered as a 501(c) (3) nonprofit

(4) A business entity (such as a corporation, general partnership, limited liability company, limited partnership, joint venture, business trust, a public benefit corporation, or nonprofit entity), or

(5) An institution of higher education.

(B) Student financial assistance does not include—

(1) Any assistance that is excluded pursuant to the HEA Title IV, 479B (see above)

(2) Financial support provided to the student in the form of a fee for services performed

(e.g., a work study or teaching fellowship that is not excluded pursuant to the HEA Title IV 479B)

(3) Gifts, including gifts from family or friends, or

(4) Any amount of the scholarship or grant that, either by itself or in combination with assistance excluded under this paragraph or the HEA 479B (see above), exceeds the actual covered costs of the student. The actual covered costs of the student are the actual costs of tuition, books, and supplies (including supplies and equipment to support students with learning disabilities or other disabilities), room and board, or other fees required and charged to a student by the education institution, and, for a student who is not the head of household or spouse, the reasonable and actual costs of housing while attending the institution of higher education and not residing in an assisted unit.

(C) Student financial assistance must be expressly:

(1) for tuition, books, room, and board, or other fees required and charged to a student by the educational institution

(2) to assist a student with the costs of higher education, or

(3) to assist a student who is not the head of household or spouse with the reasonable and actual costs of housing while attending the educational institution and not residing in an assisted unit.

(D) Student financial assistance may be paid directly to the student or to the education institution on the student’s behalf. Student financial assistance paid to the student must be verified by the responsible entity as student financial assistance.

(E) When the student is also receiving assistance excluded under HEA Title IV 479B (see above) the amount of student financial assistance that must be counted is determined by adding the HEA 479 B assistance to the other assistance.

(1) If the amount of the HEA 479B assistance excluded above is equal to or exceeds the actual covered costs, all of the other assistance is counted as income.

(2) If the amount of HEA 479B assistance excluded above is less than the actual covered costs, the amount of assistance that is considered student financial assistance is the amount by which the actual covered costs exceed both types of student assistance.

(10) Income and distributions from any Coverdell education savings account under section 530 of the Internal Revenue Code of 1986 or any qualified tuition program under section 529 of such Code; and income earned by government contributions to, and distributions from, ‘‘baby bond’’ accounts created, authorized, or funded by Federal, State, or local government.

Note | According to HUD, baby bonds are “money held in trust by the government for children until they are adults” These “are being authorized in various States and localities in an effort to combat the wealth gap and address systemic poverty.”

(11) The special pay to a family member serving in the Armed Forces who is exposed to hostile fire.

(12) (i) Amounts received by a person with a disability that are disregarded for a limited time for purposes of Supplemental Security Income eligibility and benefits because they are set aside for use under a Plan to Attain Self-Sufficiency (PASS); Note | PASS is an SSI provision to help individuals with disabilities return to work. (ii) Amounts received by a participant in other publicly assisted programs which are specifically for or in reimbursement of out-of-pocket expenses incurred (e.g., special equipment, clothing, transportation, childcare, etc.) and which are made solely to allow participation in a specific program; (iii) Amounts received under a resident service stipend not to exceed $200 per month. A resident service stipend is a modest amount received by a resident for performing a service for the PHA or owner, on a part-time basis, that enhances the quality of life in the development.

(iv) Incremental earnings and benefits resulting to any family member from participation in training programs funded by HUD or in qualifying Federal, State, Tribal, or local employment training programs (including training programs not affiliated with a local government) and training of a family member as resident management staff. Amounts excluded by this provision must be received under employment training programs with clearly defined goals and objectives and are excluded only for the period during which the family member participates in the employment training program unless those amounts are excluded under paragraph (b)(9)(i) of this section.

(13) Reparation payments paid by a foreign government pursuant to claims filed under the laws of that government by persons who were persecuted during the Nazi era.

(14) Earned income of dependent full-time students in excess of the amount of the deduction for a dependent in §5.611.

(15) Adoption assistance payments for a child in excess of the amount of the deduction for a dependent in § 5.611.

Note | (14) & (15) will be $480 through 2024 but will be indexed for inflation annually starting in 2025.

(16) Deferred periodic amounts from Supplemental Security Income and Social Security benefits that are received in a lump sum amount or in prospective monthly amounts, or any deferred Department of Veterans Affairs disability benefits that are received in a lump sum amount or in prospective monthly amounts.

(17) Payments related to aid and attendance under 38 U.S.C. 1521 to veterans in need of regular aid and attendance.

(18) Amounts received by the family in the form of refunds or rebates under State or local law for property taxes paid on the dwelling unit.

(19) Payments made by or authorized by a State Medicaid agency (including through a managed care entity) or other State or Federal agency to a family to enable a family member who has a disability to reside in the family’s assisted unit. Authorized payments may include payments to a member of the assisted family through the State Medicaid agency (including through a managed care entity) or other State or Federal agency for caregiving services the family member provides to enable a family member who has a disability to reside in the family’s assisted unit.

(20) Loan proceeds (the net amount disbursed by a lender to or on behalf of a borrower, under the terms of a loan agreement) received by the family or a third party (e.g., proceeds received by the family from a private loan to enable attendance at an educational institution or to finance the purchase of a car).

(21) Payments received by Tribal members as a result of claims relating to the mismanagement of assets held in trust by the United States, to the extent such payments are also excluded from gross income under the Internal Revenue Code or other Federal law.

(22) Amounts that HUD is required by Federal statute to exclude from consideration as income for purposes of determining eligibility or benefits under a category of assistance programs that includes assistance under any program to which the exclusions set forth in the exclusions in the HUD regulations apply. HUD will publish a notice in the Federal Register to identify the benefits that qualify for this exclusion. Updates will be published when necessary.

(23) Replacement housing ‘‘gap’’ payments made in accordance with 49 C.F.R. part 24 that offset increased out-of-pocket costs of displaced persons that move from one federally subsidized housing unit to another Federally subsidized housing unit. Such replacement housing ‘‘gap’’ payments are not excluded from annual income if the increased cost of rent and utilities is subsequently reduced or eliminated, and the displaced person retains or continues to receive the replacement housing ‘‘gap’’ payments.

Note | “Gap” payments are payments made to persons who are displaced by a federally funded program under the Uniform Relocation Act.

(24) Nonrecurring income, which is income that will not be repeated in the coming year based on information provided by the family. Income received as an independent contractor, day laborer, or seasonal worker is not excluded from income under this paragraph, even if the source, date, or amount of the income varies. Nonrecurring income includes:

• Payments from the U.S. Census Bureau for employment (relating to the decennial census or the American Community Survey) lasting no longer than 180 days and not culminating in permanent employment. • Direct Federal or State payments intended for economic stimulus or recovery. • Amounts directly received by the family as a result of State refundable tax credits or State tax refunds at the time they are received. • Amounts directly received by the family as a result of Federal refundable tax credits and Federal tax refunds at the time they are received. • Gifts for holidays, birthdays, or other significant life events or milestones (e.g., wedding gifts, baby showers, anniversaries). • Non-monetary, in-kind donations, such as food, clothing, or toiletries, received from a food bank or similar organization. • Lump-sum additions to net family assets, including but not limited to lottery or other contest winnings.

(25) Civil rights settlements or judgments, including settlements or judgments for back pay.

(26) Income received from any account under a retirement plan recognized as such by the Internal Revenue Service, including individual retirement arrangements (IRAs), employer retirement plans, and retirement plans for self-employed individuals; except that any distribution of periodic payments from such accounts shall be income at the time they are received by the family.

(27) Income earned on amounts placed in a family’s Family Self Sufficiency Account. Note | FSS is a program that enables HUD-assisted families to increase their earned income and reduce dependency on welfare assistance and rental subsidies. Goals are set that a family must work toward to graduate from the program. An interest-bearing escrow account is established by the PHA for each participating family. Any increases in the family’s rent as a result of increased earned income during the family’s participation in the program result in a credit to the family’s escrow account. Once a family graduates from the program, they may access the escrow and use it for any purpose.

(28) Gross income a family member receives through self-employment or operation of a business; except that the following shall be considered income to a family member:

• Net income from the operation of a business or profession. Expenditures for business expansion or amortization of capital indebtedness shall not be used as deductions in determining net income. An allowance for depreciation of assets used in a business or profession may be deducted, based on straight line depreciation, as provided in Internal Revenue Service regulations; and • Any withdrawal of cash or assets from the operation of a business or profession will be included in income, except to the extent the withdrawal is reimbursement of cash or assets invested in the operation by the family.

[See (22) above] Excluded are “amounts that HUD is required by Federal statute to exclude from consideration as income for purposes of determining eligibility or benefits under a category of assistance programs that includes assistance under any program to which the exclusions set forth in paragraph (b) of this section apply. HUD will publish a notice in the Federal Register to identify the benefits that qualify for this exclusion. Updates will be published when necessary”. The list will include, at a minimum, updates made by HUD since the publication of Exhibit 5-1 in the 2013 Change 4 to the HUD Handbook 4350.3. Below is this updated list.

24 C.F.R. § 5.609(b) and (c) (updated on 1/31/2024) | Other Federal Exclusions [2024]

(1) The value of the allotment provided to an eligible household under the Food Stamp Act of 1977 (7 U.S.C. 2017(b)). This exclusion also applies to assets.

(2) Payments, including for supportive services and reimbursement of out-of-pocket expenses, for volunteers under the Domestic Volunteer Service Act of 1973 (42 U.S.C. 5044(f)(1), 42 U.S.C. 5058), are excluded from income except that the exclusion shall not apply in the case of such payments when the Chief Executive Officer of the Corporation for National and Community Service appointed under 42 U.S.C. 12651c determines that the value of all such payments, adjusted to reflect the number of hours such volunteers are serving, is equivalent to or greater than the minimum wage then in effect under the Fair Labor Standards Act of 1938 (29 U.S.C. 201 et seq.) or the minimum wage, under the laws of the State where such volunteers are serving, whichever is the greater (42 U.S.C. 5044(f)(1)). This exclusion also applies to assets.

Note | This corrects an exception to payments, including for supportive services and reimbursement of out of pocket expenses, for volunteers under the Domestic Volunteer Service Act of 1973.

(3) Certain payments received under the Alaska Native Claims Settlement Act (43 U.S.C. 1626(c)). This exclusion also applies to assets.

(4) Income derived from certain sub marginal land of the United States that is held in trust for certain Indian tribes (25 U.S.C. 5506). This exclusion also applies to assets.

(5) Payments or allowances made under the Department of Health and Human Services’ Low-Income Home Energy Assistance Program (42 U.S.C. 8624(f) (1)). This exclusion also applies to assets.

(6) Income derived from the disposition of funds to the Grand River Band of Ottawa Indians (Pub.

L. 94–540, section 6). This exclusion also applies to assets.

(7) The first $2000 of per capita shares received from judgment funds awarded by the National Indian Gaming Commission or the U.S. Claims Court, the interests of individual Indians in trust or restricted lands, and the first $2000 per year of income received by individual Indians from funds derived from interests held in such trust or restricted lands. This exclusion does not include proceeds of gaming operations regulated by the Commission (25 U.S.C. 1407–1408). This exclusion also applies to assets.

(8) Amounts of student financial assistance funded under title IV of the Higher Education Act of 1965 (20 U.S.C.1070), including awards under Federal work-study programs or under the Bureau of Indian Affairs student assistance programs (20 U.S.C. 1087uu). For section 8 programs only (42 U.S.C. 1437f), any financial assistance in excess of amounts received by an individual for tuition and any other required fees and charges under the Higher Education Act of 1965 (20 U.S.C. 1001 et seq.), from private sources, or an institution of higher education (as defined under the Higher Education Act of 1965 (20 U.S.C. 1002)), shall not be considered income to that individual if the individual is over the age of 23 with dependent children (Pub. L. 109–115, section 327) (as amended).

(9) Payments received from programs funded under Title V of the Older Americans Act of 1965 (42 U.S.C.3056g).

(10) Payments received on or after January 1, 1989, from the Agent Orange Settlement Fund (Pub. L. 101–201) or any other fund established pursuant to the settlement in In Re Agent Orange Product Liability Litigation, M.D.L. No. 381 (E.D.N.Y.). This exclusion also applies to assets.

(11) Payments received under the Maine Indian Claims Settlement Act of 1980 (Pub. L. 96–420 section 9(c)). This exclusion also applies to assets.

(12) The value of any childcare provided or arranged (or any amount received as payment for such care or reimbursement for costs incurred for such care) under the Childcare and Development Block Grant Act of 1990 (42 U.S.C. 9858q).

(13) Earned income tax credit (EITC) refund payments received on or after January 1, 1991, for programs administered under the United States Housing Act of 1937, title V of the Housing Act of

1949, section 101 of the Housing and Urban Development Act of 1965, and sections 221(d) (3), 235, and 236 of the National Housing Act (26 U.S.C. 32(l)). This exclusion also applies to assets. Please note: While this income exclusion addresses EITC refund payments for certain HUD programs, the exclusion in 26 U.S.C. 6409 excludes Federal tax refunds more broadly for any Federal program or under any State or local program financed in whole or in part with Federal fund. Note | This is a provision that applies only to specific HUD programs.

(14) The amount of any refund (or advance payment with respect to a refundable credit) issued under the Internal Revenue Code is excluded from income and assets for a period of 12 months from receipt (26 U.S.C. 6409).

Note | This adds the amount of any refund (or advance payment for a refundable credit) issued under the Internal Revenue Code is excluded from income and assets for 12 months from receipt.

(15) Payments by the Indian Claims Commission to the Confederated Tribes and Bands of the Yakima Indian Nation or the Apache Tribe of the Mescalero Reservation (Pub. L. 95–433 section 2). This exclusion also applies to assets.

(16) Allowances, earnings and payments to AmeriCorps participants under the National and Community Service Act of 1990 (42 U.S.C. 12637(d)).

(17) Any allowance paid to children of Vietnam veterans born with spinal bifida (38 U.S.C. 1802– 05),children of women Vietnam veterans born with certain birth defects (38 U.S.C. 1811–16), and children of certain Korean and Thailand service veterans born with spinal bifida (38 U.S.C. 1821–22) is excluded from income and assets (38 U.S.C. 1833(c)).

Note | This adds allowance paid to children of certain Thailand service veterans born with spina bifida.

(18) Any amount of crime victim compensation that provides medical or other assistance (or payment or reimbursement of the cost of such assistance) under the Victims of Crime Act of 1984 received through a crime victim assistance program, unless the total amount of assistance that the applicant receives from all such programs is sufficient to fully compensate the applicant for losses suffered as a result of the crime (34 U.S.C. 20102(c)). This exclusion also applies to assets.

(19) Allowances, earnings, and payments to individuals participating in programs under the Workforce Investment Act of 1998 reauthorized as the Workforce Innovation and Opportunity Act of 2014 (29 U.S.C.3241(a)(2)).

(20) Any amount received under the Richard B. Russell School Lunch Act (42 U.S.C. 1760(e)) and the Child Nutrition Act of 1966 (42 U.S.C. 1780(b)), including reduced-price lunches and food under the Special Supplemental Food Program for Women, Infants, and Children (WIC). This also applies to assets.

(21) Payments, funds, or distributions authorized, established, or directed by the Seneca National Settlement Act of 1990 (Pub. L. 101–503 section 8(b)). This exclusion also applies to assets.

(22) Payments from any deferred U.S. Department of Veterans Affairs disability benefits that are received in a lump sum amount or in prospective monthly amounts (42 U.S.C. 1437a (b) (4));

(23) Any amounts (i) not actually received by the family, (ii) that would be eligible for exclusion under 42 U.S.C. 1382b (a) (7), and (iii) received for service-connected disability under 38 U.S.C. chapter 11 or dependency and indemnity compensation under 38 U.S.C. chapter 13 (25 U.S.C. 4103(9) (C)) as provided by an amendment by the Indian Veterans Housing Opportunity Act of 2010 (Pub. L. 111– 269 section 2) to the definition of income applicable to programs under the Native American Housing Assistance and Self Determination Act (NAHASDA) (25 U.S.C. 4101 et seq.)

Note | This corrects the exclusion of income applicable to programs under the Native American Housing Assistance and Self Determination Act (NAHASDA) to more accurately capture the language of 25 U.S.C. 4103(9). This is a provision that applies only to specific HUD programs.

(24) A lump sum or a periodic payment received by an individual Indian pursuant to the Class Action Settlement Agreement in the case entitled Elouise Cobell et al. v. Ken Salazar et al., 816 F.Supp.2d 10 (Oct.5, 2011 D.D.C.), for a period of one year from the time of receipt of that payment as provided in the Claims Resolution Act of 2010 (Pub. L. 111–291 section 101(f)(2)). This exclusion also applies to assets.

(25) Any amounts in an ‘‘individual development account’’ are excluded from assets and any assistance, benefit, or amounts earned by or provided to the individual development account are excluded from income, as provided by the Assets for Independence Act, as amended (42 U.S.C.604(h)(4)). Note | This corrects that any assistance, benefit, or amounts earned by or provided to the individual development account are excluded from income, as provided by the Assets for Independence Act, as amended.

(26) Per capita payments made from the proceeds of Indian Tribal Trust Settlements listed in IRS Notice 2013–1 and 2013–55 must be excluded from annual income unless the per capita payments exceed the amount of the original Tribal Trust Settlement proceeds and are made from a Tribe’s private bank account in which the Tribe has deposited the settlement proceeds. Such amounts received in excess of the Tribal Trust Settlement are included in the gross income of the members of the Tribe receiving the per capita payments as described in IRS Notice 2013–1. The first $2,000 of per capita payments are also excluded from assets unless the per capita payments exceed the amount of the original Tribal Trust Settlement proceeds and are made from a Tribe’s private bank account in which the Tribe has deposited the settlement proceeds (25 U.S.C. 117b(a), 25 U.S.C. 1407).

Note | This corrects that the first $2,000 of per capita payments are also excluded from assets unless the per capita payments exceed the amount of the original Tribal Trust Settlement proceeds and are made from a Tribe’s private bank account in which the Tribe has deposited the settlement proceeds.

(27) Federal assistance for a major disaster or emergency received by individuals and families under the Robert T. Stafford Disaster Relief and Emergency Assistance Act (Pub. L. 93–288, as amended)

and comparable disaster assistance provided by States, local governments, and disaster assistance organizations (42 U.S.C. 5155(d)). This exclusion also applies to assets.

(28) Any amount in an Achieving Better Life Experience (ABLE) account, distributions from and certain contributions to an ABLE account established under the ABLE Act of 2014 (Pub. L. 113– 295.), as described in Notice PIH 2019–09/H 2019–06 or subsequent or superseding notice is excluded from income and assets.

Note | This adds the value of, distributions from, and certain contributions to Achieving Better Life Experience (ABLE) accounts established under the ABLE Act of 2014.

(29) Assistance received by a household under the Emergency Rental Assistance Program pursuant to the Consolidated Appropriations Act, 2021 (Pub. L. 116–260, section 501(j)), and the American Rescue Plan Act of 2021.

Note |This adds assistance received by a family from payments made under the Emergency Rental Assistance Program under the Consolidated Appropriations Act, 2021, and the American Rescue Plan Act of 2021.

End HOTMA and Other Federally Excluded List

Annual Income (Inclusions and Exclusions) – from HUD PIH guidance

[Note: The original PDF contains a multi-page reference chart from HUD PIH guidance on Annual Income Inclusions and Exclusions (manual pages 67–68). The chart is an image and is not reproduced here; see the original PDF for the chart.]

4.7 STUDENT FINANCIAL ASSISTANCE (STUDENT FINANCIAL INCOME)

4.7.1 STUDENT FINANCIAL ASSISTANCE – SECTION 8 RECIPIENTS

Financial assistance does not includes loans. For Section 8 assistance recipients, student financial assistance will continue to be counted as below.

Financial assistance includes:

• Amounts received under Section 479B of the Higher Education Act (HEA) of 1965;
• Amounts received as other Student Financial Assistance (assistance from an institute of higher learning like a scholarship; and
• Assistance from parents, grandparents, and other private sources.

“Tuition” for Section 8 recipients is identical to the “actual covered costs” used in the rules for non-Section 8 student families. It used to just be for tuition and other fixed fees. Source: Costello Compliance

Student financial income is counted the same for Section 8 recipients as it was before HOTMA. Until HUD appropriations language changes, ADOH will handle Section 8 recipients differently than other families. All other families will have student income counted, as below.

Examples from HOTMA Implementation Notice G.16.d

[Note: The original PDF contains a reference example chart from HOTMA Implementation Notice G.16.d (manual page 70). The chart is an image and is not reproduced here; see the original PDF.]

4.7.2 STUDENT FINANCIAL ASSISTANCE – NON- SECTION 8 RECIPIENTS

Student Assistance Type 1. Any assistance under Title IV, 479B of the Higher Education Act of 1965 (HEA), as amended, is excluded from income.

Below is a list of HEA Title IV programs. There may be sub-programs:

Grants to Students in Attendance at Institutions of Higher Education

• Federal Pell Grants • Federal early outreach and student services programs

• Federal TRIO Programs
• Gaining Early Awareness and Readiness for Undergraduate Programs
• Model Program Community Partnership and Counseling Grants
• National Student Savings Demonstration Program

• Federal supplemental educational opportunity grants • Leveraging educational assistance partnership program • Special programs for students whose families are engaged in migrant and seasonal farm work. • Robert C. Byrd Honors Scholarship Program • Childcare Access Means Parents in School. • Teach grants • Scholarships for veteran’s dependents

Federal Family Education Loan Programs

Federal Work-Study Programs

William D. Ford Federal Direct Loan Program

Federal Perkins Loans

Higher Education Relief Opportunities for Students

Note that on July 1, 2024, the following was added when an HEA amendment took effect. Section 134 of the Workforce Innovation and Opportunity Act (WIOA). This includes income earned in employment and training programs including: workforce investment activities for adults and workers dislocated as a result of permanent closure or mass layoff at a plant, facility, or enterprise, or a natural or other disaster that results in mass job dislocation, to assist such adults or workers in obtaining reemployment as soon as possible.

Student Assistance Type 2 | Student financial assistance for tuition, books, and supplies (including supplies and equipment to support students with learning disabilities or other disabilities), room and board, and other fees required and charged to a student by an institution of higher education (as defined under Section 102 of the Higher Education Act of 1965) and, for a student who is not the head of household or spouse, the reasonable and actual costs of housing while attending the institution of higher education and not residing in an assisted unit.

(A) Student financial assistance means a grant or scholarship received from—

(1) The Federal government

(2) A State, Tribe, or local government

(3) A private foundation registered as a 501(c)(3) nonprofit

(4) A business entity (such as a corporation, general partnership, limited liability company, limited partnership, joint venture, business trust, a public benefit corporation, or nonprofit entity), or

(5) An institution of higher education.

(B) Student financial assistance does not include—

(1) Any assistance that is excluded pursuant to the HEA Title IV, 479B (see above)

(2) Financial support provided to the student in the form of a fee for services performed (e.g., a work study or teaching fellowship that is not excluded pursuant to the HEA Title IV 479B)

(3) Gifts, including gifts from family or friends, or

(4) Any amount of the scholarship or grant that, either by itself or in combination with assistance excluded under this paragraph or the HEA 479B (see above), exceeds the actual covered costs of the student. The actual covered costs of the student are the actual costs of tuition, books, and supplies (including supplies and equipment to support students with learning disabilities or other disabilities), room and board, or other fees required and charged to a student by the education institution, and, for a student who is not the head of household or spouse, the reasonable and actual costs of housing while attending the institution of higher education and not residing in an assisted unit.

(C) Student financial assistance must be expressly:

(1) for tuition, books, room, and board, or other fees required and charged to a student by the educational institution

(2) to assist a student with the costs of higher education, or

(3) to assist a student who is not the head of household or spouse with the reasonable and actual costs of housing while attending the educational institution and not residing in an assisted unit.

(D) Student financial assistance may be paid directly to the student or to the educational institution on the student’s behalf. Student financial assistance paid to the student must be verified by the responsible entity as student financial assistance.

(E) When the student is also receiving assistance excluded under HEA Title IV 479B (see above) the amount of student financial assistance that must be counted is determined by adding the HEA 479 B assistance to the other assistance.

(1) If the amount of the HEA 479B assistance excluded above is equal to or exceeds the actual covered costs, all of the other assistance is counted as income.

(2) If the amount of HEA 479B assistance excluded above is less than the actual covered costs, the amount of assistance that is considered student financial assistance is the amount by which the actual covered costs exceed both types of student assistance.

Examples from HOTMA Implementation Notice G.16.c

[Note: The original PDF contains a reference example chart from HOTMA Implementation Notice G.16.c (manual pages 73–74). The chart is an image and is not reproduced here; see the original PDF.]

4.8 ASSETS

Post HOTMA, assets are broken down into three categories: (1) Necessary personal property, (2) non-necessary personal property, and (3) real property.

4.8.1 CALCULATING ASSET VALUE AND INCOME – HUD HOTMA IMPLEMENTATION NOTICE F.4.C

The following table lists examples of necessary and non-necessary personal property. This is not an exhaustive list.

Table F.1 — Asset Category / Description / Asset Value & Income Treatment

1. Necessary personal property — Value excluded as Assets

Necessary personal property are items essential to the family for the maintenance, use, and occupancy of the premises as a home; or they are necessary for employment, education, or health and wellness. Necessary personal property includes more than merely items that are indispensable to the bare existence of the family. It may include personal effects (such as items that are ordinarily worn or utilized by the individual), items that are convenient or useful to a reasonable existence, and items that support and facilitate daily life within the family's home. Necessary personal property also includes items that assist a family member with a disability, including any items related to disability-related needs, or that may be required for a reasonable accommodation for a person with a disability. Necessary personal property does not include bank accounts, other financial investments, or luxury items.

Examples of necessary personal property:

• Car(s)/vehicle(s) that a family relies on for transportation for personal or business use (e.g., bike, motorcycle, skateboard, scooter)
• Furniture, carpets, linens, kitchenware
• Common appliances
• Common electronics (e.g., radio, television, DVD player, gaming system)
• Clothing
• Personal effects that are not luxury items (e.g., toys, books)
• Wedding and engagement rings
• Jewelry used in religious/cultural celebrations and ceremonies
• Religious and cultural items
• Medical equipment and supplies
• Health care–related supplies
• Musical instruments used by the family
• Personal computers, phones, tablets, and related equipment
• Professional tools of trade of the family, for example professional books
• Educational materials and equipment used by the family, including equipment to accommodate persons with disabilities
• Equipment used for exercising (e.g., treadmill, stationary bike, kayak, paddleboard, ski equipment)

2. Non-necessary personal property — If totals are at the asset threshold or less: Value excluded, actual income included. If totals exceed the asset threshold: Values and income are included

Items of personal property that do not qualify as necessary personal property will be classified as non-necessary personal property. It's up to the owner/agent to gather enough facts to determine if the asset is necessary or non-necessary personal property.

Examples of non-necessary personal property:

• Recreational car/vehicle not needed for day-to-day transportation (campers, motorhomes, travel trailers, all-terrain vehicles (ATVs))
• Bank accounts or other financial investments (e.g., checking account, savings account, stocks/bonds)
• Recreational boat/watercraft
• Expensive jewelry without religious or cultural value, or which does not hold family significance
• Collectibles (e.g., coins/stamps)
• Equipment/machinery that is not used to generate income for a business
• Items such as gems/precious metals, antique cars, artwork, etc.

3. Real Property — Included as assets and income included

24 C.F.R. § 5.100 — "Real property as used in this part has the same meaning as that provided under the law of the State in which the property is located."

4.8.2 CALCULATING ASSET VALUE AND INCOME – THREE STEPS

Examine family self-certification of asset values and income collected during the application process. Identify the three asset types listed:

1] Necessary personal property [NPP] 2] Non-necessary personal property [NNPP] 3] Real property. Step 1 | Address NPP & Excluded Assets

Identify and exclude any necessary personal property or excluded assets listed by the family.

Step 2 | Address NNPP

Based on self-certification, determine if the value of all net non-necessary personal property exceeds the asset threshold.

If yes |Since non-necessary personal property alone totals over the asset threshold, all family net assets also exceed the asset threshold. Verify all non-necessary and real property values and income with third-party documentation. List each asset’s value and actual income on the TIC.

If no | List each non-necessary personal property asset as $0 on the TIC but include actual income for each (subject to state policy).

Step 3 | Address Real Property and Imputed Income

Add the value of any real property to the non-necessary personal property (as counted in step 2) to determine if total net family assets exceed the asset threshold. Note: If a federal or state tax refund or refundable credit was received in the last 12 months, subtract this amount from the value of total net assets before determining the above [this may be skipped if total net assets are already below the asset threshold]. If yes |Verify all asset values and income with 3rd-party documentation (to the extent not already done in Step 2). Impute income on non-financial account assets that have income that cannot otherwise be determined and add it to other income.

If no | Use self-certification to verify asset values and income if allowed by company policy (for HUD-funded properties only – except every 3 years when full verification is allowed). Do not impute asset income on any assets.

The $50,000 is as adjusted annually for Inflation.

4.8.3 NEW HOTMA ASSET TERMS – SEE HOTMA IMPLEMENTATION NOTICE 2023-10 F.4.A (NET FAMILY ASSETS)

Net Family Assets Include

Net family assets are the net cash value of all assets owned by the family, after deducting reasonable costs that would be incurred in disposing of real property, savings, stocks, bonds and other forms of investment.

Assets Disposed Of In determining net family assets, PHAs or owners, as applicable, must include the value of any business or family assets disposed of by an applicant or tenant for less than fair market value (including a disposition in trust, but not in a foreclosure or bankruptcy sale) during the two years preceding the date of application for the program or reexamination, as applicable, in excess of the consideration received therefor. In the case of a disposition as part of a separation or divorce settlement, the disposition will not be considered to be for less than fair market value if the applicant or tenant receives consideration not measurable in dollar terms. Negative equity in real property or other investments does not prohibit the owner from selling the property or other investments, so negative equity alone would not justify excluding the property or other investments from family assets.” Example 1: A family gave away a home with a net value of $80,000. The value of the home must be included in the calculation of net family assets for two years following the transfer of property. If a family sold a home for less than fair market value, the difference between the value and the amount for which they sold it would be included in net family assets for two years following the transfer of property. For example, if a family sold a property with a fair market value of $80,000 to a friend for $20,000, then the difference in value ($60,000) minus the cost to dispose of the property ($10,000), which is in this example totals $50,000, would be counted in net family assets for two years from the date of the property’s transfer to the other party.

Example 2: Doris Open sold a house worth $489,000 to her daughter for $100,000. Reasonable realtor and legal fees are determined to be $35,000. $354,000 must be counted as an asset for 2 years after the sale. $489,000 – $35,000 - $100,000 = $354,000

Imputed Asset Income

When net family assets are valued over $50,000 (as adjusted by inflation) and actual returns on specific non-financial account assets cannot be calculated, imputed returns on the non-financial account assets are included in income. All actual returns that can be calculated continue to be included in income. Jointly Owned Assets

For assets jointly owned by the family and one or more individuals outside of the assisted family, the owner agent must include the total value of the asset in the calculation of net family assets unless the

1. asset is otherwise excluded, 2) the family can demonstrate that the asset is inaccessible to them, or

2. the family cannot dispose of any portion of the asset without the consent of another owner who refuses to comply. If the family demonstrates that they can only access a portion of an asset, then only that portion’s value shall be included in the calculation of net family assets

Summary of Asset Exclusions – from HUD PIH guidance

[Note: The original PDF contains a reference chart from HUD PIH guidance on Asset Exclusions (manual page 80). The chart is an image and is not reproduced here; see the original PDF.]

4.8.4 ASSET EXCLUSIONS (THE 11 EXCLUSIONS)

224 C.F.R. § 5.603 (b) “Net Family Assets

Excluded from the calculation of net family assets are:

(1) The value of necessary items of personal property.

(2) The combined value of all non-necessary items of personal property if the combined total value does not exceed $50,000 (adjusted for inflation based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)).

Note | In the HOTMA Implementation Notice, Table F1, HUD has provided examples of the difference between “necessary” and “non-necessary” items of personal property from [1] & [2] above.

(3) The value of any account under a retirement plan recognized as such by the Internal Revenue Service, including individual retirement arrangements (IRAs), employer retirement plans, and retirement plans for self-employed individuals.

(4) The value of real property that the family does not have the effective legal authority to sell in the jurisdiction in which the property is located.

(5) Any amounts recovered in any civil action or settlement based on a claim of malpractice, negligence, or other breach of duty owed to a family member arising out of law, that resulted in a family member being a person with a disability.

(6) The value of any Coverdell education savings account under section 530 of the Code, the value of any qualified tuition program under section 529 of the Code, the value of any Achieving a Better Life Experience (ABLE) account authorized under Section 529A of the Code, and the value of any ‘‘baby bond’’ account created, authorized, or funded by Federal, State, or local government. Note | According to HUD, baby bonds are “money held in trust by the government for children until they are adults.” These “are being authorized in various States and localities in an effort to combat the wealth gap and address systemic poverty.”

(7) Interests in Indian trust land.

(8) Equity in a manufactured home where the family receives assistance under 24 C.F.R. part 982.

(9) Equity in property under the Homeownership Option for which a family receives assistance under 24 C.F.R. part 982.

Note | The above two provisions relate to Housing Choice Vouchers that assist manufactured and other homeowners.

(10) Family Self-Sufficiency Accounts.

Note | FSS is a program that enables HUD-assisted families to increase their earned income and reduce dependency on welfare assistance and rental subsidies. Goals are set that a family

must work toward to graduate from the program. An interest-bearing escrow account is established by the PHA for each participating family. Any increases in the family’s rent as a result of increased earned income during the family’s participation in the program result in a credit to the family’s escrow account. Once a family graduates from the program, they may access the escrow and use it for any purpose.

(11) Federal tax refunds or refundable tax credits for a period of 12 months after receipt by the family. Note | The HOTMA Implementation Notice F.4.e instructs us to subtract the value of any tax return that a family has received in the last 12 months from the account the proceeds of the return were deposited into. This applies if the account has a value assigned because the total non-necessary personal property exceeds $50,000, as adjusted.

4.9 INCOME AND ASSET VERIFICATION

The aapplicant must complete the Asset Self-Certification Form and management (or their software) must complete the Worksheet. If the net family assets exceed the asset threshold, then owners/agents must verify all non-necessary and real property values and income with third-party documentation. Verification must be received by the owner/agent prior to the applicant executing a lease agreement and completing the TIC. Owners/agents must submit verification prior to the annual recertification date (as applicable).

Third-Party Documentation/Verification is preferred and is defined under current federal rules as documents prepared by a knowledgeable third party and usually supplied directly by the family. Although it can also be supplied directly from the third party, this creates unnecessary delay and is only done when necessary because the family does not possess what is needed. In the rare case when they are necessary, income and asset verification forms that must be completed by a third party should be signed by each adult family member during the application process and again at time of certification or recertification. These forms provide consent to release information necessary for the third party to complete the form. Additional signatures of new adult members should be obtained prior to move-in or when a member turns 18 years of age.

Acceptable forms of verification - HOTMA adjusted the hierarchy of preferred verifications:

HOTMA Implementation Notice Attach. J.5/ Table J2 Verification Hierarchy, 8823 Guide chapter 4, IRS Newsletter 54 Order of Acceptability

““Highest”

• Upfront Income Verification (UIV) from a source

database

• EIV – Only for HUD properties (cannot be use for Level 6

LIHTC or HOME/NHTF certifications)

• Non-EIV systems (The Work Number, web-based

Level 5

state benefits systems, etc.)

“High”

Level 4 - Written, third-party verification from the source and supplied by the family, also known as “tenant-provided

verification”.

(e.g. pay stubs, payroll summary reports, employer notices/letters of hire/termination, SSA benefit verification letters, bank statements, child support payment stubs, welfare benefit letters and/or printouts, and unemployment benefit notices). HUD programs include EIV

w. self-certification if the tenant agrees that EIV is accurate.

“Medium”

• Written, third-party verification form completed by the third party.

Level 3

• Use if Level 5 or Level 4 verification is not available or is insufficient.

Level 2

• Oral third-party verification

“Low”

Level 1 - Self-certification

The owner/agent must give the applicant the opportunity to explain any significant differences between the amounts reported on the application and amounts reported on third-party verifications to determine actual income. The file should be documented to explain the difference by using a clarification form.

4.9.1 ADDITIONAL VERIFICATION SITUATIONS – HOTMA JOINT IMPLEMENTATION NOTICE ATTACHMENT J.5.A.

Fixed Income. For fixed-income sources, a statement covering the appropriate benefit year is acceptable documentation.

Pay Stubs. Owners/agents must obtain a minimum of two current and consecutive pay stubs for determining annual income from wages. Owners/agents were previously required to collect the most recent four to six pay stubs to verify employment income. Owners/agents must set a consistent policy to determine how many to keep.

For new income sources or when two pay stubs are not available, the owner/agent must determine income based on the information from a traditional written, third-party verification form or the best available information.

Income Tax Returns. Returns with corresponding official tax forms and schedules attached and including third-party receipt of transmission for income tax return filed (such as the tax preparer’s transmittal receipt, a summary of transmittal from online source, etc.) are an acceptable form of written, third-party verification.

Self-Affidavit. This is a last resort method and may only be used if third-party verification is unavailable. It can also be used for file information clarification. This is the only method allowed to verify pregnancy.

4.9.2 LIHTC USE OF OTHER PROGRAMS’ DETERMINATION OF INCOME – HOTMA JOINT IMPLEMENTATION NOTICE J4

The owner/agent may determine the family’s income prior to the application of any deductions applied following 24 C.F.R. § 5.611 based on income determinations made within the previous 12-month period for purposes of the following means-tested forms of Federal public assistance:

(A) TANF | The Temporary Assistance for Needy Families block grant (42 U.S.C. 601, et seq.).

(B) Medicaid (42 U.S.C. 1396 et seq.).

(C) SNAP | The Supplemental Nutrition Assistance Program (42 U.S.C. 2011 et seq.).

(D) EITC | The Earned Income Tax Credit (26 U.S.C. 32).

(E) LIHTC | The Low-Income Housing Credit (26 U.S.C. 42).

(F) WIC | The Special Supplemental Nutrition Program for Women, Infants, and Children (42 U.S.C.1786).

(G) SSI | Supplemental Security Income (42 U.S.C. 1381 et seq.).

(H) Other programs administered by the Secretary.

(I) Other means-tested forms of Federal public assistance for which HUD has established a memorandum of understanding.

(J) Other Federal benefit determinations made in other forms of means-tested Federal public assistance that the Secretary determines to have comparable reliability and announces through the Federal Register.

4.9.3 VERIFICATION OF OTHER PROGRAM DETERMINATIONS- HOTMA JOINT IMPLEMENTATION NOTICE J4

If an owner of an LIHTC property uses the annual income determination made by an administrator for allowable forms of federal means-tested public assistance, then the PHA or owner/agent must obtain it using the appropriate third-party verification. The verification must indicate the tenant’s family size and composition and state the amount of the family’s annual income. The annual income need not be broken down by family member or income type. The verification must also meet all HUD requirements related to the length of time that is permitted before the third-party verification is considered out-of-date and is no longer an eligible source of income verification. If the appropriate third-party verification is unavailable, or if the family disputes the determination made for purposes of the other form of federal means-tested public assistance, the owner must calculate annual income per HUD’s usual anticipated income rules.

If a state LIHTC agency is going to allow the income determination of other means-tested programs, they will likely design a form for this purpose for the administrator of the means-tested program to complete. The Safe Harbor verification may be in the form of an award letter from the relevant federal program and must show that the family’s income determination was made in the previous 12 months. HUD clarifies in this notice that the verification will be considered acceptable if the documentation meets the criteria that the income determination was made within the 12 months before the receipt of the verification by the PHA/MFH Owner. This satisfies all verification date requirements for Safe Harbor income determinations.

The Safe Harbor documentation will be considered acceptable if any of the following dates fall into the 12 months before the receipt of the documentation by the PHA/MFH Owner:

• Income determination effective date.
• Program administrator’s signature date.
• Family’s signature date.
• Report effective date.
• Other report-specific dates that verify the income determination date.

The only information that PHA/MFH Owners are permitted to use to determine income under this Safe Harbor is the total income determination made by the federal means-test program administrator. Other federal programs may provide additional information about income inclusions and exclusions in their award letters. However, these determinations and any other information must not be considered by the PHA/MFH Owner for purposes of the HOTMA Safe Harbor provision. PHAs/MFH Owners are not permitted to mix and match Safe Harbor income determinations and other income verifications.

4.10 VERIFICATION TERM

All earned and unearned income and assets that affect an applicant’s eligibility must be verified and be 120 days current (prior to) the initial certification or annual recertification date. Do not write clarifications on the original verification form. Be sure to date stamp the verifications as they come in.

4.11 ACCEPTABLE FORMS OF VERIFICATION – SOME SPECIFIC EXAMPLES

Acceptable forms of verification for specific types of income and asset situations are as follows:

Employment Income

See 4.7 Order of Acceptability of Income Verifications. A minimum of two consecutive and recent paystubs are required.

Self-Employment Income

1st Choice: the most recent Federal Tax Return Forms 1040 with schedule(s): C, E or F, or accountant’s statements of net income.

2nd Choice: Current financial statements of the business AND a certification from the applicant giving the anticipated income for the 12 months following certification. Military Pay

A minimum of two consecutive and recent “Leave and Earnings” (LES) statement showing the gross pay per pay period and frequency of pay.

Social Security, Railroad Retirement, Unemployment, Veteran’s or Other Benefits See 4.7 Order of Acceptability of Income Verifications.

Child Support and/or Alimony – Joint HOTMA Notice 2023-10 J.1

“Annual income includes “all amounts received,” not the amount that a family may be legally entitled to receive but did not. For example, a family’s child-support or alimony income must be based on payments received, not the amounts the family is entitled to receive based on any court or agency order. A copy of a court order or other written payment agreement may not be sufficient verification of amounts received by a family.”

After careful consideration, ADOH will no longer require the use of the Child Support/Alimony Affidavit. It is the owner/agent’s responsibility to determine a family’s receipt of child support and alimony income based solely on how the question on the rental application and/or income/asset questionnaire is answered by each adult family member. Please ensure that your rental application and/or questionnaire is HOTMA sufficient to clearly ask about child support and alimony income that is received.

If the applicant/tenant answers “Yes” to the question regarding the receipt of child support and/or alimony, the owner/agent must third-party verify this source of income (e.g. child support enforcement statement etc.)

If the applicant/tenant answers “No” to the question regarding the receipt of child support and/or alimony, on the owner/agent need not take any further action.

As of this time, ADOH does not require a specific application/questionnaire form. It is expected that the owner/agent will have a LIHTC/HOTMA sufficient

application/questionnaire, which must be signed by all adult family members. No question should be left blank and there should be a space for comments.

Court orders are irrelevant or will be part of the usual verification process and not a major determiner for these support types.

Recurring Contributions and Gifts

Certification signed by the person providing the assistance giving the purpose, dates and value of the gifts, or a verification letter from the bank, attorney, or a trustee administering the contribution.

-or-Certification from the applicant giving the purpose, dates and value of the gifts. Asset Financial Accounts (Checking, Savings, CDs, etc.)

See 4.7 Order of Acceptability of Income Verifications.

“When verification of assets is required, owners are required to obtain a one statement that reflects the current balance of banking/financial accounts. Owners were previously required to average the balance of six checking account statements to determine the cash value of a checking account.”

Trusts

Statement from attorney or trust executor giving details required in 24 C.F.R. § 5.609(b)(2). Equity in Real Estate

1st Choice: Appraisal, assessment, or recent settlement statement on real estate, letter or mortgage statement from financial institution showing loan balance, letter from real estate broker regarding reasonable costs associated with selling asset.

2nd Choice: Letter from real estate broker or financial institution regarding value of asset, loan balance, and reasonable costs associated with selling assets.

Retirement Accounts (IRAs, 401(k)s, etc.) Joint HOTMA Notice 2023-10 F.4.b / Example 3 Excluded from net family assets is “the value of any account under a retirement plan recognized as such by the IRS, including individual retirement arrangements (IRAs), employer retirement plans, and retirement plans for self-employed individuals.” Details, and subcategories of these types of plans can be found on the IRS website. Only periodic withdrawals are counted as income. To verify this income:

A statement for the account showing periodic withdrawals.

-or-Letter from account administrator giving the amounts and numbers of periodic withdrawals.

Student Financial Assistance

Statement or documents from the school financial administrator or other documentation establishing details required in 24 C.F.R. § 5.609(b)(9).

4.12 CALCULATING ANNUAL INCOME

Verified income must be converted to annual amounts by using the following calculations. ADOH follows IRS guidance for calculating income and using the methods described below. ADOH understands that owners/investors may have more stringent requirements for calculating in which year-to-date is used. Owers/investors should follow owner/investor rules when applicable. However, YTD will not be the determining factor for income qualifications for ADOH purposes as it is not mandated by the IRS or HUD.

To annualize full-time employment, multiply:

A. hourly wages by weekly hours by 52

B. weekly wages by 52

C. bi-weekly amounts by 26

D. semi-monthly amounts by 24

E. monthly amounts by 12

F. Annual wages should always reflect a full 12-month period regardless of how the wages are paid. For example, if a teacher is paid $21,000 gross annual salary, use $21,000 as the wages regardless of whether the teacher is paid in 12 monthly installments, 9 installments or some other payment schedule.

4.13 VALUING ASSETS

Asset information (total value and income to be derived) should be obtained at the time of application or prior to the annual recertification. If the family net assets exceed the asset threshold, third-party verification is required to determine the market value of an asset. The market value of the asset may then be converted to a cash value by subtracting whatever costs would be incurred to convert the asset to cash.

EXAMPLES:

A. Penalties for premature withdrawal

B. Broker fees

C. Legal fees

D. Settlement costs for real estate transactions

Joint held assets – Joint HOMA Notice 2023-10 F.4.a

“For assets jointly owned by the family and one or more individuals outside of the assisted family, PHAs/MFH owners must include the total value of the asset in the calculation of net family assets, unless the asset is otherwise excluded (see Joint HOTMA Notice 2023-10 F.4.b), or unless the assisted family can demonstrate that the asset is inaccessible to the, or that they cannot dispose of any portion of the asset without the consent of another owner who refuses to comply. If the family demonstrates

that they can only access a portion of an asset, then only that portion’s value shall be included in the calculation of net family assets for the family. Likewise, any income from a jointly owned asset must be included in annual income, unless that income is specifically excluded (see attachment G), or unless the family demonstrates that they do not have access to the income from that asset, or they only have access to a portion of the income from that asset.”

The old default was that jointly held assets were pro-rated among joint owners. However, pro-rating continues to be allowed, but not as the default. (HUD 435005-7 D1.)

When valuing a checking account, remember to use the current balance.

EXAMPLES:

1. A couple has a $5,000 Certificate of Deposit earning 6 percent interest, but they will have a three-month penalty for early withdrawal.

$5,000 x 6 percent = $300 (actual yearly income from asset)

$300 divided by 12 (months in a year) x 3 (months penalty) = $75 (penalty for early withdrawal)

$5,000 - $75 (penalty) = $4,925 (cash value of asset)

2. A couple has a home valued at $50,000. Broker fees for the home would be $2,000 and the settlement costs would be $6,000.

Market Value of Home $50,000

Minus Broker Fees 2,000

Minus Settlement Costs 6,000

Cash Value $42,000

Actual yearly income from the asset is zero.

4.14 INCOME DERIVED FROM ASSETS

See Section 4.6.1 regarding Assets.

4.15 UNEMPLOYED APPLICANTS

If any adult family member is unemployed, that member must complete an Unemployed Applicant Affidavit (UAA).

Anticipated income that is revealed on the Unemployed Applicant Affidavit that is eminent or verifiable must be determined.

Family members who are unemployed but receive regular income from any source such as Social Security, pension, recurring gifts, etc., must complete an Unemployed Applicant’s Affidavit in addition to the verification of income.

4.16 INCOME AND ASSET VERIFICATION OF HUD-ASSISTED RESIDENTS

Should the LIHTC resident be the recipient of Section 8 assistance in the form of a Section 8 Certificate, Section 8 Voucher, or Section 8 Moderate Rehabilitation Contract, the resident may supply a HUD 50058 form demonstrating the determination of income by the Contract Administrator or PHA. If this is not supplied by the resident, the Contract Administrator for the HUD assistance (i.e., the local Public Housing Authority (PHA)) may provide to the owner/agent a statement that the resident’s income does not exceed the applicable income limit under § 42(g) of the Code or a certification form (e.g., HUD Form 50058 or 50059) for the recipient. This certification may be obtained for all move-ins and recertifications.

4.17 RECERTIFICATION

Resident eligibility must be determined annually for all low-income units. This is performed in the same manner as the initial eligibility requirements, and applies for mixed use projects. For HOME/SHTF/NHTF and NSP projects, the owner is required to verify the income with complete source documentation at move-in and every sixth year during the HOME period of affordability. For the intervening years, the Self-Certification recertification process is allowed. Please note that the six-year cycle applies to the project’s period of affordability, not the tenant occupancy. If per the Asset Self-Certification form and Worksheet the family net assets exceed the asset threshold, then the owner/agent is required to obtain third-party verification of all income sources of all family members except dependent minors as well as benefits paid on behalf of minors in the family. Income from assets is also included in annual income for recertification purposes and must be verified in the same manner as the initial eligibility requirements. When recertification procedures are performed, the owner/agent needs to pay particular attention to the circumstances that may have affected the continuing eligibility of a resident in a low-income unit. Areas of concern include:

A. New or additional income sources

B. Change in employment status

C. Change in household composition

D. Additional assets

E. Deletion of assets

The owner/agent must complete a TIC supported by the income verification, the Asset Self-Certification Form, and the Worksheet to establish continued eligibility. This process is identical to the move-in eligibility process, except the income limits are amended to reflect 140 percent of the median income limit as adjusted for family size.

A. If the family annual income at recertification increases above the qualifying income level at move-in but is less than 140 percent of the MTSP limit as adjusted for family size, the family continues to qualify as a low income set-aside unit.

B. If the family annual income at recertification exceeds 140 percent of the MTSP limit as adjusted for family size, the unit may continue to count as a low income set-aside unit as long as the next vacant unit of comparable or smaller size in the building is occupied by a

qualified low income resident, until the original mix of LIHTC units is restored, not counting the over 140% units.

For mixed-income properties (where all units are not LIHTC), if the family annual income at recertification exceeds 140 percent of the MTSP limit as adjusted for family size and the next available unit of equal or smaller size is a unit that was previously occupied by a market rate resident, then that unit must be rented to a qualified low income family at the tax credit rental rate. The owner is then free to charge market rate rent to the family that has exceeded 140 percent of the MTSP limit. The Available Unit Rule applies on a building-by-building basis.

For 100 percent low-income properties, however, the 140 percent income ceiling does not apply. These projects automatically meet the program requirements because every vacant unit should be rented to an eligible tenant. The program allows the over-income tenant to remain in the unit. When the unit is vacated, it simply needs to be occupied by an eligible tenant.

Self-Certifications: The Code no longer requires annual recertifications to be completed for properties that are 100% affordable. ADOH has created certain restrictions specific to annual recertifications. To maintain compliance with ADOH, each household must be initially certified as required by the program and then, for the first annual recertification and moving forward, the property may choose to obtain a Self-Certification of income (the Self-Certification form can be found on ADOH website) from the family. Initially ADOH only allowed this option for 50% and 60% targeted unit; however, ADOH now allows this option for all MTSP levels (20% - 80%, as applicable). If a lower MTSP family certifies their income to be over 140% of the maximum income limit, the unit will remain in compliance so long as the rent remains restricted until the Arizona available unit rule can be applied, if applicable. If a family certifies their income to be over 140% of the minimum set-aside maximum income limit, the unit will remain in compliance so long as the rent remains restricted and the next available unit is rented to an income qualified family. It is imperative that the property address student status annually to ensure that the family remains student eligible. If a family is comprised of all full-time students, they must meet one of the student exceptions to continue to be an LIHTC eligible family. Before utilizing the Self-Certification, ADOH strongly recommends the property contact the owner and all financial parties to ensure they will allow the use of Self-Certifications, as some financial parties do not allow their use. An owner and/or their affiliates may be more restrictive than the program requires. Please Note: For HOME/SHTF/NHTF and NSP projects, the owner is required to verify the income with complete source documentation at move-in and every sixth year during the HOME period of affordability. For the intervening years, the Self-Certification recertification process is allowed. Please note that the six-year cycle applies to the project’s period of affordability, not the tenant occupancy.

To view sample forms and to access the Online Annual Report Instructions, please visit the ADOH website. Although the forms are not required forms ADOH strongly recommends using forms from ADOH website. If an owner/agent chooses to use its own forms, the forms must read exactly as the forms on the ADOH website.

Compliance Division information can be found under Programs/Program Compliance. ADOH’s available LIHTC/HOME Workshop dates can be found under Training & Events.

Please find the ShareFile-Walkthrough pdf. under the “Helpful Links” Section on the ADOH website/ Programs Compliance.

Please follow the directions below to start the NextGen registration process. E-mail wcsupport@azhousing.gov if you have not been issued a Property ID Number as this is a requirement.

Steps

1. Log-in to https://mfweb.azhousing.gov/auth/login

2. Click on “Click here to create one.”

3. Account type, please select Compliance User

4. Complete all the required information in the Profile section, including selection of a Username and Password.

5. Use the property’s name under Organization Name.

6. Under Properties, enter the Property ID Number received from ADOH (you can add the project to the registration request by pushing the blue button with the white plus in it).

7. Once the registration is submitted, ADOH will grant access to the property. You will receive an email when the process is complete.

NOTE: The registration account will show as “User is disabled” until the request gets approved by the Data Division.

The external User Guide can be found in the top right corner of the NextGen screen or on the ADOH Website under Program Compliance.