Article | Items that are Excluded by HOTMA from Income and Assets

Many sources of income under HOTMA may be excluded, but may still represent an asset if the income is deposited into an asset that is not excluded. For instance, worker's compensation benefits are excluded. However, if the worker's comp benefits are placed into a checking account and remain in that account the day it is verified, the checking account is still an asset. Similarly, the value of a source of income may be excluded once placed in an excluded asset. Wages placed into an ABLE account represent income that disappears once it is in the ABLE account. Some monies are excluded from both income and assets. This article briefly discusses a list of items excluded from both income and assets. Below are quotes directly from HOTMA regulations.  

Disability-related settlements

Income | 24 CFR 5.609(b)(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.

Asset | 24 CFR § 5.603 Net family assets (3)(v) 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.

Coverdell, 529, ABLE accounts, and baby bonds

Income | 24 CFR 5.609(b)(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.

Income |Federal Register Notice 6410–N–01 Federally Mandated Exclusions From
Income  (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.

Asset | 24 CFR § 5.603 Net family assets (3)(vi) The value of any Coverdell education savings account under section 530 of the Internal Revenue Code of 1986, the value of any qualified tuition program under section 529 of such Code, the value of any Achieving a Better Life Experience (ABLE) account authorized under Section 529A of such Code, and the value of any “baby bond” account created, authorized, or funded by Federal, State, or local government.

Note | ABLE accounts are not listed in the income exclusion in HOTMA, although HUD does include it in the income exclusions based on other federal laws. On the other hand, HUD did include ABLE accounts in the asset exclusions. According to HUD, this was because the income exclusions are more complicated, and HUD refers to MFH Notice 2019–06 for a more detailed description of HUD ABLE polices.  

IRS-recognized retirement accounts

Income | 24 CFR 5.609(b)(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.

Asset | 24 CFR § 5.603 Net family assets (3)(iii) 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.

Tax return or refundable tax credits

Income | 24 CFR 5.609(b)(24)(iv) Amounts directly received by the family as a result of Federal refundable tax credits and Federal tax refunds at the time they are received.

Federal Register Notice 6410–N–01 Federally Mandated Exclusions From
Income (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).

Asset | 24 CFR § 5.603 Net family assets (3)(xi) Federal tax refunds or refundable tax credits for a period of 12 months after receipt by the family.

Federally excluded assets

As announced in our blog HERE, HUD published a list of federally excluded income exclusions that are complementary to the HOTMA regulatory exclusions. For instance, benefits under the Food Stamp Act have been excluded from income for years. However, now that the value of food stamps is generally deposited onto debit cards, the question may have arisen as to whether the cards are assets (since other benefit debit cards are). Of the federally excluded list, twenty-three of the twenty-nine listed items are excluded from both income and assets. See our summary of this list, which indicates which ones are excluded from assets HERE.

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