Question

I read in the HOTMA regulation at 24 CFR 5.609 (b)(24)(ii) and (iv) that federal and state tax returns are excluded. Yet, after a state tax credit file review, an agent made an observation requiring a change. They instructed us to stop subtracting state tax returns from the net value of assets. How do I explain the state agent's error here?

Answer

Summary: State tax returns are excluded from income at the time they are received (as are federal returns), but only federal tax returns are subtracted from net assets. 

In this case, the state agency is correct. The citation that the asker of the question provided from 24 CFR 5.609 (b)(24)(ii) and (iv) does establish that State and federal tax returns are excluded from income. They are among the examples of "nonrecurring" income. Similarly, (18) of this section excludes "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."  However, the section of the HOTMA regulation that deals with assets is 24 CFR 5.603 (b) Net family assets. Part (3)(xi) of this section says that excluded from assets are Federal tax refunds or refundable tax credits for a period of 12 months after receipt by the family." Careful reading demonstrates that State returns, although excluded from income, are not deducted from assets. 

 

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