Question from a Blog Reader

"I have really been enjoying the Costello hybrid HOTMA course. As I reviewed two of the course worksheets, I have a question.  I know that HUD's guidance on tax returns has changed very recently, and maybe this is contributing to my confusion. In one case, it indicates that a tax return/refundable credit is not counted "at the time it is received" [24 CFR 5.609(b)(12)] and another indicates that it is not counted for 12 months [24 CFR 5.603(11)]. Which is it?

Answer

Summary answer: Tax returns or refundable credits are not counted as INCOME when they are received. The 12-month rule relates to ASSETS, specifically how long we subtract the amount of the return from total net assets.

When it comes to income, tax returns are classified as nonrecurring income. This means, for instance, that a HUD resident will not need to report a substantial tax return, even if it would otherwise represent a change of more than 10% of adjusted income (when an interim is required in other circumstances). Also, when looking back at prior year income, tax returns or refundable credits will not need to be examined or counted as income. However, on the asset side, the value of the return/credit will be subtracted from total net assets for 12 months from receipt. 

What has changed does not relate to the above answer, but since the reader brings it up we'll also address that here. HUD interpretive guidance in September of 2023 [Notice H-2023-10] indicated that we should subtract the value of any tax return/credit from the asset that the return/credit was deposited into. In the February 2024 update to the Notice, HUD adjusted the guidance to indicate that we should subtract the amount from total net assets. This means that rather than subtracting a return/credit from non-necessary personal property and limiting the deduction to the amount of the asset it went into, we will subtract the full value of the return from net family assets, regardless of where the return went.

Example

A household has $56,030 in total assets. All these assets are non-necessary personal property, including a checking account with a $930 balance. Nine months before the certification, the household received a $1,230 tax return.

• Under the 2023 guidance, the tax return would be subtracted from the checking account, resulting in a $0 balance on the checking account and total net assets of  $55,100.
• Under the current guidance, the entire tax return is subtracted directly from total net assets, totaling $54,800.

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