REVISED

DATE: January 9, 2026 (Updated)

TO: Owners of Low-Income Housing Tax Credit (LIHTC) Projects

FROM: California Tax Credit Allocation Committee (CTCAC)

RE: Housing Opportunity Though Modernization Act (HOTMA) Guidance for LIHTC Projects in the State of California

HOTMA was enacted on July 29, 2016, and affects the public housing and Section 8 rental assistance programs subsidized by the Department of Housing and Urban Development (HUD). On February 14, 2023, HUD published the final rules and implementation of the HOTMA legislation in the Federal Register and determined an implementation date for multifamily housing projects with HUD subsidy to be January 1, 2024. CTCAC implementation will not be mandatory until January 01, 2027. Income and asset documentation shall be collected within 120 days of this date.

The LIHTC program is not a HUD Multifamily program. However, Section 42 of the Internal Revenue Code (IRC) from the Internal Revenue Service (IRS), which regulates the LIHTC program, does statutorily rely on the HUD Multifamily definition and methodology for determining the income eligibility of residents occupying units at LIHTC projects, and many LIHTC projects are layered with HUD subsidies such as Section 8. As of the date of this memorandum, the IRS has not released specific guidance for the HOTMA final rule provisions.

In the absence of guidance from the IRS, CTCAC reviewed the HOTMA legislation and determined the following sections are applicable to the LIHTC program.

• Annual Income Definition
• Net Family Assets Definition
• Annual Income Exclusions

CTCAC monitoring guidance for HOTMA policies will be as follows and will be available to projects that opt to implement the new policies beginning January 1, 2024; implementation can be partial or full implementation.

Annual Income Definition

The HOTMA legislation does not significantly change the annual income definition from that previously noted in HUD 4350. The definition of income is all amounts of income, not specifically excluded, received by each member of the household who is 18 years or older, or is the head, co-head, or spouse. The definition also includes unearned income received on behalf of dependents under 18. The unearned income definition is broad, encompassing any annual income that is not "earned". This can include, but is not limited to, Social Security payments, Supplemental Security payments, AFDC/TANF/CalWORKs/GA, VA payments, etc., where the amount received is from a non-wage paying source.

CTCAC will continue to require 3-months of current and consecutive paystubs with a Verification of Employment (VOE) to determine income eligibility at move-in.

Safe Harbor - The final rule provides for a safe harbor for HUD projects on income calculations derived from different programs such as LIHTC, WIC, and SSI. HOTMA allows income calculated on the TIC to be used for HUD program purposes.

Foster Children and Foster Adults – The legislation clarifies that foster children/foster adults are included for purposes of determining appropriate unit size (like a live-in aide), but they are not considered members of the household for the purposes of determining income or assets. Any income (earned or unearned) received by the foster child/adult is excluded from income calculations.

Nonrecurring income – The final HOTMA rules define and provide examples of "nonrecurring income." This definition replaces the prior definition of "sporadic income". Nonrecurring income as defined, that will not be repeated in the next 12 months from the effective date of certification, is excluded from annual income. Examples of nonrecurring income include US Census Bureau payments for work of less than 180 days that does not result in a permanent position, direct Federal or State payments intended for economic stimulus or recovery, amounts received for tax credits or refunds, gifts for holidays, birthdays, significant life events or milestones, in-kind donations from food banks, and lump sum additions such as lottery or other contest winnings.

It does not include income earned as an independent contractor, day laborer, seasonal worker, and unemployment payments (EDD).

Student Financial Aid – The final HOTMA legislation significantly changes the methodology for determining the type and amount of financial aid that needs to be calculated for households with students. Prior to the final rule being published, financial aid was only counted for those households receiving Section 8 assistance and who did not meet one of two exceptions. Those exceptions were over age 23 with a dependent child or living at home with their parents and claimed as a dependent. The legislation removes the Section 8 exception and will apply to any household receiving financial aid assistance as of January 1, 2024.

New Methodology, Student Financial Aid Calculation for Section 8 Households meeting special criteria:

• Head of Household, Co-Head, or Spouse and
• 23 or under OR without dependent children

1. Determine the amount of actual covered costs. This now includes tuition, books and supplies, room and board, and other fees required and charged to a student by an institution of higher education.
2. If the total amount of financial aid (HEA + Private) is equal to or less than the amount of the actual covered costs, then you do not need to count financial aid to the household.
3. If the total amount of financial aid is more than the actual covered costs, subtract the amount of aid received through the HEA plus private, from the actual covered costs. a. Any excess amount of aid received will be included into income calculation

**For these Section 8 students, only student financial assistance needed for actual covered costs can be excluded from income. The amount excluded will be the lower of total student financial assistance or actual covered costs.

Section 8 HH Exception Calculation Example:

Step 1: Determine amount of actual covered costs and subtract financial assistance:

$20,000 (actual covered costs) MINUS $40,000 (total assistance) EQUALS $20,000 Positive Balance once actual covered costs paid

Step 2: Determine amount of student financial assistance to include in income:

New Methodology for Section 8 Households (not meeting special criteria above) and Non-Section 8 Households:

1. Must separate the type of financial aid received into 2 types: a. Financial aid received through section 479B of the Higher Education Act of 1965 (HEA), such as Pell Grants, Federal Work-Study programs, etc., and b. Other Financial Aid, such as, Private aid like private club or entity scholarships, university scholarships, and scholarships received through non-profit organizations. Student loans remain excluded from income determination.
2. Determine the amount of actual covered costs. This now includes tuition, books and supplies, room and board, and other fees required and charged to a student by an institution of higher education.
3. If the total amount of financial aid (HEA + Private) is equal to or less than the amount of the actual covered costs, then you do not need to count financial aid to the household.
4. If the total amount of financial aid is more than the actual covered costs, first subtract the amount of aid received through the HEA from the actual covered costs. a. Any excess amount of aid received through the HEA above the actual covered costs is excluded from the income calculation.
5. If the total amount of financial aid received through the HEA is less than the actual covered costs, and the student is receiving private aid, then subtract the remaining balance of the actual costs (after the HEA deduction) from the amount of private aid. a. Any excess amount of aid received through private sources (other financial aid) above the actual covered costs is included in the income calculation.

HUD Example: Example G10: Treatment of Student Financial Assistance in Non-Section 8 Programs

Juan is a full-time student and received the following grants and scholarships to cover his 1st year of college: Federal Pell Grant = $25,000; University Scholarship = $15,000; Rotary Club Scholarship = $3,000

Total assistance received under 479B of HEA = $25,000 (Federal Pell Grant) Total other student financial assistance received = $18,000 (University and Rotary Club Scholarship) Juan's actual covered costs = $28,000 (Tuition, books, supplies, room/board, other fees)

Step 1: Determine amount of actual covered costs exceeding section 479B assistance. $28,000 (actual covered costs) MINUS $25,000 (total assistance received under 479B of HEA) EQUALS $3,000 Balance

Step 2: Determine amount of student financial assistance to include in income. $18,000 (other student financial assistance received) MINUS $3,000 (actual covered costs exceeding section 479B assistance) EQUALS $15,000 (if a negative amount, use $0)

Step 3: $15,000 Amount of student financial assistance included in Juan's income

Net Family Assets Definition

In the final rules for the HOTMA legislation, HUD clarifies that "net family assets" do not include the value of all non-necessary items of personal property with a combined value of $52,787 or less, as adjusted by an inflationary factor (current passbook rate). Non-necessary in this context refers to most assets previously accounted for by HUD 4350 Chapter 5, including savings accounts, checking accounts, CDs, etc.

The final rule also removes some specific types of assets formerly included in the Net Family Assets definition and either excludes them from calculation as part of household eligibility or modifies the way the asset is to be calculated. These include excluding the balance of retirements accounts such as IRAs, 401Ks, or CalPERS or similar pension, changes to checking account average calculation, changes to revocable trust asset income determination, specifies that undeterminable asset values use the HUD Passbook rate, and clarifies that the calculation of asset income for over $52,787 in assets is dependent on which can be determined, actual or imputed, not the greater of the two.

On January 1, 2027, CTCAC will implement the following changes to the LIHTC program in California, to align with the above provisions of HOTMA regarding Net Family Assets.

1. Households with combined assets at or under $52,787 will be allowed to self-certify using the $52,787 Asset Certification form. This form will be modified from the current Under $5k Asset form. a. Households with combined assets over $52,787 will still require 3rd party verification. b. Mixed income projects (LIHTC and conventional market units) will need to 3rd party verify all assets every year if combined assets are over $52,787. c. 100% LIHTC projects who continue to complete full income and asset recertifications after Y2 (move-in and 1st recert), may continue to use the $52,787 Asset form at any Y2+ recertification. d. CTCAC does not require 3rd party verification for combined assets at or under $52,787 provided the $52,787 Asset Certification is included in the certification packet. However, ownership/management may require 3rd party documentation for combined assets at or under $52,787.
2. The balance of retirement accounts such as 401Ks, IRAs or CalPERS or similar retirement/pension accounts will be excluded from asset determination. a. Any regular distributions from a 401K, IRA, CalPERS or other retirement/pension accounts are still calculated as household income.
3. The current balance of the most recent statement of a checking account will be used to determine the asset value. This is a change from the prior requirement of a 6-month average.
4. All federal tax refunds or refundable tax credits are excluded from Net Family Assets for 12 months after receipt.
5. A revocable trust under the control of a household member, when the grantor is part of the assisted family or household (or trust is otherwise under the control of the family or household), is considered a net family asset.
6. The current balance of the most recent statement of a checking account will be used to determine the asset value. This is a change from the prior requirement of a 6-month average.
7. All federal tax refunds or refundable tax credits are excluded from Net Family Assets for 12 months after receipt.
8. If an applicant/household member is part owner in a real estate property but does not have authority to sell the property, then the real estate asset is excluded from calculation.
9. As of January 1, 2027, CTCAC will follow the HOTMA guidance for combined household assets over $52,787 or over and use either the actual asset value (if it can be determined) OR the imputed value using the HUD Passbook rate (if actual income from asset cannot be determined), rather than the higher of the two when calculating the value of an asset. The current passbook rate is .40% (updated annually). In instances where there are some assets that have actual asset value and some are imputed, both types of values will be added together to determine the total household assets.

Example:

Annual Income Exclusions

The HOTMA final rule legislation has both modified and added to the list of income exclusions noted in HUD 4350. All other previously noted exclusions in HUD 4350 remain in effect. CTCAC will implement these additions and modifications on January 1, 2027, and will not include them in determining a household's eligibility.

Modifications to Exclusions list

1. Previous exclusion – Earnings in excess of $480 for each full-time student 18 years or older (excluding head of household and spouse) a. Modification – the $480 threshold amount may change annually as HUD releases guidance and/or updates calculations using CPI-W
2. Previous exclusion – Adoption Assistance payments in excess of $480 per adopted child a. Modification – the $480 threshold amount may change annually as HUD releases guidance and/or updates calculations using CPI-W
3. Previous exclusion – Amounts paid by a state agency to a family with a member who has a developmental disability and is living at home to offset the cost of services and equipment needed to keep the developmentally disabled family member at home a. Modification - removes the developmental disability requirement and changes the exclusion to any amounts paid by a state Medicaid managed care system, other state agency or authorized entity, to enable a family member who has a disability to reside in the family's assisted unit. CTCAC will no longer require a doctor's note to verify disability.
4. Previous exclusions – Temporary, nonrecurring, or sporadic income (including gifts) and lump sum payments a. Modification – creates separate exclusion regarding gifts b. Modification – consolidates the definition to include income that will not be repeated in the coming year. Provides the following examples: i. U.S. Census Bureau for employment income (relating to decennial census or the American Community Survey) lasting no longer than 180 days and not resulting in permanent employment ii. Direct federal or state payments for economic stimulus or recovery iii. State or federal refundable tax credits or state or federal tax refunds received iv. Non-monetary, in-kind donations, such as food, clothing, or toiletries, received from a food bank or similar organization v. Lump-sum additions to net family assets, including but not limited to lottery or other contest winnings c. Modification – clarifies that income received as an independent contractor, day laborer, seasonal worker, or unemployment payments (EDD) are not excluded and must be calculated as part of the household's income.
5. Previous exclusion – the full amount of student financial assistance paid directly to the student or to the educational institution (income inclusion exception for households receiving Section 8) a. Modification – any assistance received under 479B of the Higher Education Act of 1965 is excluded from income (except for those Section 8 Households meeting criteria as noted in this Memo) b. Modification – any amounts received by private scholarships, private club or entity scholarships, university scholarships, and scholarships received through 501(c) non-profit organizations in excess of the actual covered costs after any HEA aid is applied is counted as income toward the household. (See example in previous section above)

Additions to Exclusions list

1. Irrevocable trust or revocable trust outside of family or household control, excluded from the definition of net family assets under §5.603(b) a. Distributions of the principal, or corpus, of the trust, and b. Distributions of interest income from the trust principal used to pay the costs of health and medical care expenses for a minor
2. Revocable trust or a trust under the control of the family or household: any distributions from the trust are excluded from income a. 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 b. CTCAC will require a copy of the irrevocable trust or revocable trust to determine proper application of trust
3. Gifts - gifts for significant life events or milestones (e.g., holidays, birthdays, wedding gifts, baby showers, anniversaries) are excluded from income
4. Retirement Plans - Income received (such as interest earning, etc.) from any account under an IRS-recognized retirement plan. However, any distribution of periodic or recurring payments from these accounts shall be income at the time they are received by the family. Retirement accounts include: a. Individual retirement arrangements (IRAs) b. Employer retirement plans, and c. Retirement plans for self-employed individuals
5. Settlement Payments – includes the following: a. Insurance payments and settlements for personal or property loss – including payments through health insurance, motor vehicle insurance, and worker's compensation b. Lawsuit Settlements - 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 having a disability c. Tribal Claim Payments - Payments received by tribal members as a result of claims relating to the mismanagement of assets held in trust by the United States. This includes payments from tribal trust settlements. Payments must be excluded from gross income under the IRC or other federal law d. Civil Rights Settlements and Judgments - Civil rights settlements or judgments, including settlements or judgments for back pay
6. Aid and Attendance payments for Veterans - Payments related to aid and attendance for veterans under 38 U.S.C. 1521
7. Coverdell Accounts - Income and distributions from any Coverdell educational savings account of or any qualified tuition program under IRS sections 529 and 530
8. Baby Bonds - Income earned by government contributions to, or distributions from, 'baby bond' accounts created, authorized, or funded by federal, state, or local government
9. Loan Proceeds - The net amount disbursed by a lender to a borrower, under the loan terms. Funds may be received by the family or a third party (e.g., educational institution or car dealership).
10. Self-Employment - Gross income received through self-employment or operation of a business; with the exception of the following which shall be considered income: a. 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 IRS regulations; and b. 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.

Exclusions that remain the same

1. Amounts received by the family that are specifically for, or in reimbursement of, the cost of medical expenses for any family member a. Includes ABLE accounts
2. Income of a live-in aide, as defined in 24 CFR 5.403
3. The special pay to a family member serving in the Armed Forces who is exposed to hostile fire
4. Incremental earnings and benefits from training programs funded by HUD or qualifying federal, state, tribal, or local employment training programs (including training programs not affiliated with a local government) and training of a family member as resident management staff a. Excluded amounts must be received under employment training programs with clearly defined goals and objectives and only excluded during participation in the program unless the amounts are excluded as Federal Financial Aid (§5.609(b)(9)(i))
5. 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)
6. Amounts received by a participant in other publicly assisted programs that are specifically for or in reimbursement of out-of-pocket expenses incurred (special equipment, clothing, transportation, childcare, etc.) and which are made solely to allow participation in a specific program
7. Amounts received under a resident service stipend. A resident service stipend is a modest amount (not to exceed $200 per month) received by a resident for performing a service for the owner, on a part-time basis, that enhances the quality of life in the project. Such services may include, but are not limited to, fire patrol, hall monitoring, lawn maintenance, and resident initiative coordination. No resident may receive more than one such stipend during the same period of time
8. 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
9. Deferred periodic amounts from supplemental security income and social security benefits that are received in a lump-sum amount or in prospective monthly amounts
10. 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
11. Amounts specifically excluded by any other federal statute 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 24 CFR 5.609(c) apply. A notice will be published in the Federal Register and distributed to housing owners identifying the benefits that qualify for this exclusion. Updates will be published and distributed when necessary.

All other provisions of the HOTMA Legislation final rule including Annual /Interim Reexaminations, De Minimis Errors, Mandatory Deductions, Forms and Systems Changes, and other key changes do not apply to the LIHTC program and do not fall under the monitoring scope or jurisdiction of CTCAC.

CTCAC thanks you for your patience and understanding as we work toward meeting our LIHTC obligations. Changes to stated policies or procedures on this memo may be revised as the subject matter changes or CTCAC receives notification from IRS or HUD on any regulation changes or updates to the program. CTCAC looks forward to continued success in our working relationships with owners and property management companies.

If you have any questions regarding the policies or information noted above, you may contact the following staff:

Elizabeth Gutierrez-Ramos, Compliance – Section Chief elizabeth.gutierrez@treasurer.ca.gov

Mayra Lozano, Compliance – Section Chief mayra.lozano@treasurer.ca.gov

Emilio Contreras, Compliance – Section Chief emilio.contreras@treasurer.ca.gov

Or by phone at: 916-654-6340.

DATE: November 10, 2022

TO: Owners of Low Income Housing Tax Credit (LIHTC) Projects

FROM: California Tax Credit Allocation Committee

RE: Final Average Income Targeting (AIT) Guidance

On October 7, 2022, the IRS released the Section 42, Low Income Housing Average Income Test Regulations. These regulations constitute the final guidance from the IRS for the Average Income Test (AIT) set-aside for low-income housing. CTCAC will adhere to the final guidance and will continue to require more restrictive standards (as allowed for in the final regulation) on some aspects as currently noted in the current State Regulations (Qualified Allocation Plan or QAP).

Background: In 2018, Congress enacted the Consolidated Appropriations Act of 2018, which added a third minimum set-aside of Average Income Test (AIT) to the existing 40/60 and 20/50 set-asides. The AIT allows for unit income ranges between 20% - 80% of AMI if the overall average of the units at the property does not exceed 60% of AMI. CTCAC released guidance in March of 2018 and written into the State QAP effective May 16, 2018, that projects electing the AIT set-aside must adhere to a deeper targeted requirement. The requirements are:

• For projects seeking a competitive allocation of credits (9%) – the overall average of the project may not exceed 50% of AMI, rather than the 60% allowed in the federal legislation. This requirement keeps reporting requirements consistent at the State level with those competitive projects that choose a 40/60 or 20/50 set-aside.
• For projects seeking a non-competitive allocation of credits (4%) - the overall average of the project may not exceed 59% of AMI, rather than the 60% allowed in the federal legislation. In 2020, this State regulation was modified to the IRS requirement of 60%.

Final Regulation Guidance:

Minimum Requirements of the Average Income Test (AIT) set-aside – a project meets the minimum requirement of AIT if 40% or more of the residential units in the project are both rent restricted and occupied by tenants whose income does not exceed an average of 60% of Area Median Gross Income (AMGI). Units may be designated at 20%, 30%, 40%, 50%, 60%, 70%, or 80% of AMGI.

Irrevocable Election - Under Section 42(g), once a taxpayer elects a set-aside, the election is irrevocable. If a taxpayer previously elected to use a 20/50 or 40/60 set-aside, they may not subsequently elect to use AIT.

Designated Units – Section 42(g)(1)(C)(ii)(I) requires the taxpayer to designate each unit's imputed income limitation to determine the overall average of the property. The final regulation revises the timing of the designation from the end of the 1st year of the credit period to when a unit is first occupied as a low-income unit.

The IRS Final guidance does provide guidance for changing unit designations under certain circumstances:

1. In accordance with any procedures established by the IRS in forms, instructions, or published guidance
2. In accordance with an Agency's (CTCAC's) publicly available written procedures available to all AIT projects
3. To enhance protections of ADA, Fair Housing, VAWA, or any other State, Federal, or local law or program that protects tenants and that is identified by either the IRS or Agency (CTCAC). These protections do not necessarily have to have a specific connection to Section 42
4. To allow an existing qualified resident to transfer to a different unit within the project and keep the same income limitation and gross rent
5. To restore the required average income limitation to identify the qualified group used in conjunction with satisfying the minimum set-aside or applicable fraction

CTCAC will require that the initial designations determined at Placed in Service and noted in the Regulatory Agreement for the property, remain throughout the full 55 year compliance period. Owners may swap the status of units as needed and described above, but the number of units designated at each of the percentages (20% - 80%) must remain as noted in the Regulatory Agreement.

Next Available Unit Rule (NAUR) – For AIT units that are designated at 20% - 60%, the NAUR determination is calculated at 140% of the current 60% AMGI. For AIT units that are designated at 70% or 80%, the calculation is based on 140% of the current AMGI for that designation. The NAUR states that if an existing tax credit household exceeds the current AMGI by 140% or more, then the next unit of equal or smaller size must be rented to a qualified household.

For AIT projects, the taxpayer must limit the designation on the next unit in a way that will not cause the average of the project to exceed 60% of AMGI. In the case of AIT projects with multiple units exceeding the 140%, the IRS clarified that there is not a specific order in which units must be occupied, however, the order in which the groups are occupied may affect the qualified group used for determining the applicable fraction.

Applicable Fraction – Under the final regulations, the group of units used to determine the applicable fraction follows the same approach as determining the AIT set-aside. If a unit designated at a higher percentage causes the average of an otherwise qualified group to exceed 60% of AMGI, that unit must be excluded from the applicable fraction calculation. If a unit loses low-income status, it may impact the other units within the group, and the taxpayer may have to exclude one or more additional units to retain an average that does not exceed 60% of AMGI.

Additionally, the final regulations require that the taxpayer separately identify the units used to satisfy the AIT set-aside and the qualified group of units noted for determining the applicable fraction. These should be documented in the taxpayer's books and records and communicated to CTCAC annually.

Required Reporting – Taxpayers are required to report specific information to CTCAC and maintain detailed records establishing the accuracy of the project's set-aside, applicable fraction, and compliance with Section 42 regulations. Currently CTCAC requires the Annual Owner Certification package be completed by March for the previous year. Starting in 2023, CTCAC will be adding an additional informational report for projects that have elected an AIT set-aside to comply with the tracking requirements of the IRS final regulations.

Applicability Date – The final regulations apply to taxable years beginning after December 31, 2022. For taxable years prior to the implementation of the final regulations, taxpayers may rely on the interpretation of the Statute by the allocating agency (CTCAC) for those years to which the regulations did not apply.

CTCAC staff thank you for your patience and understanding as we work toward meeting our LIHTC obligations. Changes to stated policies or procedures on this memo may be revised as the subject matter changes or CTCAC receives notification from IRS on any regulation changes or updates to the program. CTCAC looks forward to continued success in our working relationships with owners and management agents.

If you have any question regarding the policies or information noted above, you may contact the following staff:

Elizabeth Gutierrez-Ramos, Senior Compliance Program Manager Elizabeth.gutierrez@treasurer.ca.gov

Shannon Nardinelli, Senior Compliance Program Manager Shannon.nardinelli@treasurer.ca.gov

Or by phone at: 916-654-6340.

DATE: February 18, 2022

TO: Owners and Management Companies of Low-Income Housing Tax Credit (LIHTC) Projects

FROM: California Tax Credit Allocation Committee – Compliance Section

RE: Casualty Loss Reporting

This Memorandum ("Memo") serves as guidance from the California Tax Credit Allocation Committee ("CTCAC" or "Committee") to owners and property management companies of LIHTC properties in California regarding the process and procedure for reporting incidents of casualty loss (fire, flood, mold, or other disaster damage) to one or more units at a LIHTC property.

The Internal Revenue Service ("IRS") defines casualty loss as "…the damage, destruction, or loss of property resulting from an identifiable event that is sudden, unexpected, or unusual. A sudden event is one that is swift, not gradual or progressive. An unexpected event is one that is ordinarily unanticipated and unintended. An unusual event is one that is not a day-to-day occurrence and that is not typical for low income housing credit properties." Examples of casualty loss include, but are not limited to, car accidents, fires, hurricanes, storms, vandalism, and other unexpected property damage that requires a tenant to temporarily relocate to another location while the unit is repaired. Property damage is not considered casualty loss if the damage occurred during normal use, the owner willfully caused the damage or was willfully negligent, or it was progressive deterioration such as termite damage or dry rot.

Please report instances of casualty loss to CTCAC within one week (7 days) from the date the damage occurred. The IRS requires that all instances of casualty loss be reported via Form 8823. If the damage is repaired and the unit is certified as habitable within 30 days of the incident date, CTCAC will report the casualty loss as "corrected". If the damage is not corrected within 30 days of the incident date, CTCAC will report the incident as "uncorrected" and will submit a "corrected" Form 8823 when CTCAC has received documentation confirming that the damage has been repaired and the unit is certified as habitable. Failure to report instances of casualty loss to CTCAC within 30 days of their occurrence will result in a fine of $400 plus $100 per month until CTCAC is notified of the incident (UPCS – Health and Safety Violation) in addition to any recapture of tax credits as determined by the IRS.

To notify CTCAC of casualty loss incidents, please send a formal letter via email to Compliance Program Analyst Stephen Bellotti at stephen.bellotti@treasurer.ca.gov with a CC: to Senior Program Managers Shannon Nardinelli at shannon.nardinelli@treasurer.ca.gov and Elizabeth Gutierres-Ramos at elizabeth.gutierrez@treasurer.ca.gov

The initial formal letter must include:

1. Property name and CTCAC number
2. Date instance of casualty loss occurred
3. List of units that are offline, including Building Identification Numbers ("BINs")
4. Incident report

To show correction and habitability of the units, CTCAC requires the following items:

1. Work order or invoice showing repairs were completed
2. Certification from the fire marshall or final approved permit from the city stating unit is habitable
3. One of the following: a. Date the original household returned to the unit, b. Date a newly qualified household occupies the unit, or c. Current marketing materials if the unit is vacant

For instances of casualty loss that involve multiple units, a "corrected" Form 8823 will be completed when documentation showing all units are repaired and habitable. CTCAC cannot report the repair of individual units.

The average time for the owner to receive notice from the IRS regarding casualty loss submission may vary. CTCAC processes and submits the Form 8823s to the IRS monthly.

Depending on the date the notification or correction letter is received and correspondence for missing or incomplete information is received, the "corrected" Form 8823 may be processed in the month following receipt of documentation.

Changes to stated policies or procedures on this Memo may be changed or revised in accordance with subject matter changes, regulatory changes, or updates to the program. If you have any questions regarding the policies or information noted above, please contact CTCAC Compliance Section Senior Program Managers Elizabeth Gutierrez-Ramos at elizabeth.gutierrez@treasurer.ca.gov or Shannon Nardinelli at shannon.nardinelli@treasurer.ca.gov.

DATE: February 18, 2022

TO: Owners and Management Companies of Low-Income Housing Tax Credit (LIHTC) Projects

FROM: California Tax Credit Allocation Committee – Compliance Section

RE: Manager/Exempt Unit Change Requests

This Memorandum ("Memo") serves as guidance from the California Tax Credit Allocation Committee ("CTCAC" or "Committee") to owners and management companies of LIHTC properties in California regarding the process and procedure for exempt or manager unit change requests.

Changes to exempt units may include the following:

• Location change of manager or exempt unit to a different building
• Bedroom size change of manager or exempt unit
• Add an exempt unit to the property
• Converting an exempt unit to a tax credit unit

For change requests involving the location or bedroom size of a manager or exempt unit, please submit a formal letter outlining the change requested. The letter shall include:

• Project name
• CTCAC number
• Current and proposed location and unit bedroom size(s) of manager/exempt unit(s)
  • Building(s) and unit bedroom size(s)
• Explanation and reason for requested change
• Brief description of the job duties for the resident who will be occupying the unit
  • Manager and exempt units may only be occupied by the property manager, assistant manager, or maintenance staff who work primarily at the property they reside

100% Tax Credit Units Projects

The change in location of the manager/exempt unit within the same building does not require CTCAC approval and may be done at the owner's discretion. Projects not yet issued their Regulatory Agreement or Form 8609(s) shall contact the Placed-in-Service staff for requested changes to the manager/exempt unit.

Mixed Income Projects (Tax Credit Units and Market Rate Units)

The changes to the manager/exempt unit(s) cannot be made if the exempt unit(s) are included in the Tax Credit portion of the project and identified in the Regulatory Agreement.

All request letters shall be submitted to the attention of Compliance Program Analyst, Stephen Bellotti by email at stephen.bellotti@treasurer.ca.gov with a CC: to Shannon Nardinelli at shannon.nardinelli@treasurer.ca.gov and Elizabeth Gutierrez-Ramos at elizabeth.gutierrez@treasurer.ca.gov

The average processing time for manager/exempt unit change requests for a single project is 3-4 weeks and requests are processed in the order received. Any request for changes at multiple projects may result in additional processing time. CTCAC will only process manager/exempt unit change requests at a specific property no more than once every two years.

Changes to stated policies or procedures on this Memo may be changed or revised in accordance with subject matter changes, regulatory changes, or updates to the program. If you have any questions regarding the policies or information noted above, please contact CTCAC Compliance Section Senior Program Managers Elizabeth Gutierrez-Ramos at elizabeth.gutierrez@treasurer.ca.gov or Shannon Nardinelli at shannon.nardinelli@treasurer.ca.gov.

DATE: February 7, 2025

TO: Low Income Housing Tax Credit Project Owners and Property Managers

FROM: California Tax Credit Allocation Committee – Compliance Section

RE: VA Service-Connected Disability Benefits Exclusion for Veterans

This Memorandum ("Memo") provides guidance to Low Income Housing Tax Credit ("LIHTC") project owners and property managers in response to Internal Revenue Service ("IRS") Revenue Procedure 2024-38 ("Rev. Proc. 2024-38").

Background

On August 13, 2024, the Department of Housing and Urban Development ("HUD") published "Section 8 Housing Choice Vouchers: Revised Implementation of the HUD Veterans Affairs Supporting Housing Program" (FR–6476–N–01) providing new requirements to exclude veterans' service-connected disability benefits from household income calculations for the purpose of determining HUD-VASH applicants' income eligibility for both project-based and tenant-based vouchers. Under this HUD-VASH special rule, VA service-connected disability benefits are excluded only for the purposes of determining income eligibility but are included when calculating the tenant-paid portion of rent. This alternate income requirement applies specifically to the HUD-VASH program and is not applicable to other HUD Section 8 Housing Choice Voucher programs. This ensures homeless veterans are not excluded from the HUD-VASH program because of their VA service-connected disability benefits.

Final determination from the IRS

On September 24, 2024, Treasury followed suit and issued Rev. Proc. 2024-38 that applies the same waiver for all LIHTC projects by excluding VA service-connected disability benefits only from determining income eligibility, not rent determination, for prospective and current tenants approved to receive or currently receiving assistance under the HUD-VASH program and to whom the HUD-VASH income eligibility waiver applies. The waiver applies to income determinations occurring on or after October 24, 2024 for LIHTC projects.

LIHTC File Review - HUD-VASH Projects

LIHTC project owners and property managers shall verify income for HUD-VASH recipients and include the verified service-connected disability benefits documentation in tenant files. Tenants shall complete the Certification of Zero Income form identifying how rent and other necessities will be paid.

For any questions, please contact Compliance Section Chiefs Elizabeth Gutierrez-Ramos at egutierrez@treasurer.ca.gov or Mayra Lozano at mlozano@treasurer.ca.gov.

DATE: July 29, 2025

TO: Owners of Low-Income Housing Tax Credit (LIHTC) Projects

FROM: California Tax Credit Allocation Committee (CTCAC)

RE: Rent Increase Limit Update

This Memorandum (Memo) serves as an update to the change in the cost of living measured by the April Consumer Price Index (CPI) information which is published by either using the U.S. Bureau of Labor Statistics or the California Department of Industrial Relations. The determination is dependent on the area or county in which the project is located. The new figures below are effective August 1, 2025 – July 31, 2026. The current five percent plus the percentage increase in the cost of living per county are as follows:

For more information on the Rent Increase Limit, please refer to the original memo located at: https://www.treasurer.ca.gov/ctcac/2024/supplemental/2024/rent_increase.pdf

If you have any questions regarding the rent increase limit policy, please contact the following staff by phone at 916-654-6340 or by email at:

Elizabeth Gutierrez-Ramos, Compliance – Section Chief elizabeth.gutierrez@treasurer.ca.gov

Mayra Lozano, Compliance – Section Chief mayra.lozano@treasurer.ca.gov

DATE: November 25, 2024

TO: Owners of Low-Income Housing Tax Credit ("LIHTC") Projects

FROM: California Tax Credit Allocation Committee ("CTCAC")

RE: Secondary Tenants Policy and HUD-VASH Special Rule

This Memorandum (Memo) explains the CTCAC Secondary Tenants Policy ("Policy"), which implements the statutory change made under Assembly Bill 1386 (Chapter 760, Statutes 2023) ("AB 1386") as amended by Assembly Bill 535 (Chapter 918, Statutes 2024) ("AB 535") applicable to Military and Veterans Code sections 987.003 and 987.005 and applies to all CTCAC projects with supportive housing units restricted to extremely low-income veterans (30% AMI) pursuant to a CTCAC regulatory agreement.

The Policy establishes a process to temporarily redesignate a portion of a project's 30% Area Median Income ("AMI") supportive housing units, as described above, to 50% or 60% AMI. If the project also received funding from the California Department of Housing and Community Development ("HCD"), the owner shall also follow HCD's Secondary Tenant Policy Memo which can be found on the HCD website.

This policy does not apply to CTCAC projects electing the Average Income Test ("AIT") federal set-aside.

Background

AB 1386 and AB 535, codified as Military and Veterans Code sections 987.003 and 987.005, provided for a process to temporarily redesignate extremely low-income supportive housing units restricted for veterans experiencing homelessness with incomes up to 60% AMI. The bill was enacted to resolve issues with matching unhoused veterans with vacant supportive housing units restricted to incomes at or below 30% (AMI), while retaining the LIHTC program's intent of serving the highest need tenants and in accordance with the requirements of AB 1386 and AB 535, CTCAC has established this Secondary Tenants Policy to house more veterans.

A Qualified Tenant means an extremely low-income veteran who is homeless.

A Qualified Unit means a supportive housing unit restricted to extremely low-income veterans.

A Qualified Entity means an entity that is responsible for making referrals of Qualified Tenants to Qualified Units.

A Secondary Tenant means a veteran who is homeless and has an income of up to 60% AMI.

The Secondary Tenants Policy establishes the process LIHTC owners may use to request CTCAC authorization to place homeless veterans with incomes above 30% AMI in Qualified Units and charge commensurate rent. Rents for any redesignated units are determined by the higher income limits. If a Secondary Tenant cannot be matched to and accept placement in an available unit within 14 days, a Qualified Entity may match a veteran experiencing homelessness with an income at or below 60% AMI, regardless of the source of the income, in an available unit.

The Secondary Tenants Policy allows qualified entities that are not able to place extremely low-income veterans to instead place veterans with incomes up to 60% AMI, as long as 30% of units remain extremely low-income. If a Qualified Entity responsible for making referrals of Qualified Tenants to Qualified Units is unable to locate, match, or otherwise place a Qualified Tenant in a Qualified Unit within 28 days of the Qualified Unit becoming available, the entity shall be eligible to match Secondary Tenants to the Qualified Units. CTCAC shall treat Secondary Tenants as eligible for the Qualified Units.

The Qualified Unit leased to a Secondary Tenant or other veteran experiencing homelessness would be redesignated to an AMI level commensurate with the income level of the tenant and would require the tenant to pay rent commensurate with their household income's percentage of the AMI. The next available comparable unit shall be rented to a Qualified Tenant at 30% AMI 12 months after a Secondary Tenant or other tenant who is a veteran experiencing homelessness has been placed.

Owners shall take specified actions to demonstrate a good faith effort to place Qualified Tenants in Qualified Units before they can place Secondary Tenants in Qualified Units. Good faith efforts include, but not limited to:

1. adequate marketing of vacant units spanning at least 90 days prior to the initial lease-up;
2. partnering with local homeless and veterans service providers to identify Qualified Tenants;
3. coordination with the local Continuum of Care to receive prioritized Qualified Tenant referrals;
4. coordination with the U.S. Department of Veterans Affairs to identify Qualified Tenants; and
5. documented contacts with Qualified Tenants and their case manager(s), who were matched to Qualified Units and chose not to lease the unit.

Owners shall provide documentation that substantiates the timing and frequency of such good faith efforts (i.e. date that the Qualified Entity was notified of the vacancy) when such documentation exists or a detailed timeline in the absence of documentation to evidence activities such as phone calls and meetings. Documentation of these good faith efforts, along with information about applicants that were not matched with a unit shall be submitted to CTCAC. Requirements may evolve over time and new/updated documentation may be required to capture additional information and communicate best practices to better serve veterans.

CTCAC may condition an approval on expanded coordination with the owner and community partners serving veterans, or other factors such as improved coordination with Continuum of Care or other sources of referrals. Following expiration of the Secondary Tenant approval, the owner is required to redesignate the next vacant unit as a supportive housing unit available to veterans with incomes at or below 30% AMI with the goal of bringing the project back into compliance with the unit restrictions required in the project's regulatory agreement.

Approval Process to House Secondary Tenants

Project sponsors shall submit a complete package documenting all good faith efforts for review and approval. The required information, documentation, and submission specifications are detailed in Exhibit A to this Memo. CTCAC staff will notify the sponsor if the submission is complete and has been accepted within seven (7) calendar days.

Requests may be submitted to CTCAC/CDLAC after one or more Qualified Units has been vacant for 28 days or longer. For new construction, the vacancy period starts from the Placed-in-Service ("PIS") date and for rehabilitation projects the vacancy period starts from the Notice of Completion date. Vacancy for previously occupied units in existing projects will start from the date the owner takes possession of the unit. CTCAC and CDLAC may include time from abandonment noticing timeframes and unlawful detainers at its discretion.

CTCAC/CDLAC will approve a specific number of Qualified Units that may be occupied by Secondary Tenants within a project. Projects may lease Qualified Units to Secondary Tenants until they hit the maximum number of Secondary Tenants approved by CTCAC/CDLAC or until the redesignation approval expires. In no instance shall a project have less than 30% of its units leased to 30% AMI households.*

Sample maximum redesignation with 30% of CTCAC units remaining at 30% of Area Median Income (AMI)

CTCAC Unit Mix

Minimum of 30% of the total number of CTCAC units must remain at 30% AMI. 30% times 120 Total CTCAC units equals 36: 120 30% = 36 At least 36 CTCAC units at this project must remain at 30% AMI under this policy.*

*HUD-VASH program participants who are eligible to occupy 30% AMI units after excluding VA service-connected disability benefits are recognized as Qualified Tenants. They are not treated as Secondary Tenants.

Approval Requirements and Term:

The term of CTCAC's approval for each project will be 12 months. All Secondary Tenants must take legal possession of the unit while CTCAC's approval is in effect. Secondary Tenants shall be recognized as eligible tenants by CTCAC and fully compliant with the regulatory requirements for the duration of their tenancy. Secondary Tenants shall not be involuntarily displaced for the sole reason of returning the unit mix into compliance.

Once an approval expires, no new Secondary Tenants may move into the project and owners are required to make the next available units available to Qualified Tenants until the unit mix at the project matches the regulatory agreement. After the Secondary Tenant approval has expired, owners may submit a subsequent Secondary Tenants petition if physical vacancy of Qualified Units is greater than or equal to 10% at the project at any point during an operating year or due to special circumstances detailed in a letter to HCD.

Initial rent charges for Secondary Tenants shall be commensurate with the new Secondary Tenant's household income, rounded up to the nearest 10% AMI level from the occupant's adjusted gross income. The Secondary Tenants household's initial gross maximum rent at move-in shall be the equivalent MTSP Rent Limit for their rounded-up AMI. The initial "move-in" gross rent for the Secondary Tenant must be set at gross maximum rent unless an alternate amount is approved. This move-in rent shall be used as the "rent floor" for the duration of the household's tenancy at the project. Secondary Tenants' rents are not required to be adjusted downward in the event Secondary Tenants' income decreases. Rents for Secondary Tenants may increase up to the 60% AMI rent limit with CTCAC approval through annual rent increases. A project must identify Secondary Tenants in its annual reporting to CTCAC. CTCAC may add reporting requirements for Secondary Tenants to evaluate the results of this policy.

CTCAC will review requests for completeness and advise the owner if the submission is incomplete or if clarifying information is needed.

HUD-VASH Special Rule

On August 13, 2024, HUD published the "Section 8 Housing Choice Vouchers: Revised Implementation of the HUD Veterans Affairs Supporting Housing Program (VASH)" ("special rule") that provides a new requirement to exclude veterans' service-connected disability benefits from household income calculations for the purpose of determining income eligibility. On September 24, 2024, Treasury followed suit and issued Revenue Procedure 2024-38, which takes effect on or after October 24, 2024. The rule for VASH applicants is for both project-based and tenant-based vouchers. Income determinations for VASH applicants must exclude veterans' service-connected disability income and therefore are excluded from the Secondary Tenant alternative requirements and process. HUD-VASH program participants household income excludes all service-connected disability benefits in accordance with Treasury's revenue proclamation. Eligible HUD-VASH program participants are not considered Secondary Tenants and are not counted against the cap on the number of Qualified Units that can be leased to Secondary Tenants under this policy.

Reference: Section 8 Housing Choice Vouchers: Revised Implementation of the HUD Veterans Affairs Supporting Housing Program Development, 89 Fed. Reg. 65769 (Aug. 13, 2024) (amending 24 CFR Parts 982 and 983) and Examination of returns and claims for refund, credit or abatement; determination of correct tax liability, Revenue Procedure 2024-38 (amending 26 CFR 601.105).

If you have any questions, please contact Compliance Section Chiefs, Elizabeth Gutierrez at egutierrez@treasurer.ca.gov or Mayra Lozano at mlozano@treasurer.ca.gov.

EXHIBIT A

Owners shall submit a complete package documenting all good faith efforts via secure link (i.e. Dropbox). Please submit good faith effort package via email to Compliance Section Chiefs at Elizabeth Gutierrez egutierrez@treasurer.ca.gov, and Mayra Lozano, mlozano@treasurer.ca.gov.

Checklist of Good Faith Efforts for Secondary Tenants:

• [ ] Efforts to advertise to the community at least 90 days prior to the lease-up of the building

  • Examples: Flyers, internet advertising, banners at buildings

• [ ] Efforts to work in partnership with local homeless services providers, including those that serve veterans experiencing homelessness.

  • Examples: Regular communication, outreach documentation, identifying needs and housing placement

• [ ] Efforts to coordinate with the local continuum of care to identify veterans experiencing homelessness with extremely low incomes.

  • Examples: Regular communication, outreach documentation, identifying needs and housing placement

• [ ] Efforts to coordinate with the United States Department of Veterans Affairs to identify veterans experiencing homelessness with extremely low incomes.

  • Examples: Regular communication, outreach documentation, identifying support, services and housing placement

• [ ] Documentation of contact with qualified veterans experiencing homelessness with extremely low incomes and their case managers who were matched to the available unit and chose not to lease the unit.

  • Examples: Case manager outreach, income verification or statements

It has come to the attention of the California Tax Credit Allocation Committee (CTCAC) that some project owners are holding tax credit units vacant for some time in anticipation of a rehabilitation. Given California's extreme housing shortage for lower-income households and the owner's commitment to provide affordable units, CTCAC does not approve of this practice, particularly prior to a resyndication reservation and in excess of the units that will be needed for relocation. In our view, tax credit units are to remain occupied for the longest time and greatest extent feasible. Failure to turn, market, and occupy units is a violation of the vacant unit rule, UPCS standards, and the general public use rule, which CTCAC will report to the IRS during the federal compliance period and for which CTCAC will issue negative points during the extended use period. CTCAC will use the following standards for determining violations:

• Tax credit units may not be held vacant prior to a new reservation of tax credits (resyndication), except that special needs projects may, beginning six months prior to a CTCAC application, hold up to 20% of tax credit units vacant.

• Upon a new reservation of tax credits, an owner may begin to hold unoccupied units vacant, provided that the numbers of units to be held vacant shall not exceed the number of units needed to house relocated tenants at any one time during the rehabilitation (i.e., if the rehabilitation will occur in phases, the number of units held vacant shall not exceed the number needed for the largest phase). CTCAC appreciates your efforts to provide affordable housing, even when a rehabilitation is planned.