Presented by: 2015 Zeffert & Associates All Rights Reserved. Zeffert & Associates Page 1

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1 Presented by: 2015 Zeffert & Associates All Rights Reserved Zeffert & Associates Page 1

2 Tax Credit 1. Legal Authority Where We Get Direction A key to references used in this manual Section 42, Internal Revenue Code (IRC). 42 Format used in the references: Additional Formal IRS Guidance: Treasury Regulations IRS1.42 ( -1 to -17) Revenue Rulings Rev Rul (yr - #) Revenue Procedures Rev Proc (yr - #) IRS Notices IRS Notice (yr-#) HUD (paragraph/page#) 2. Additional interpretive resources: 8823 Guide (rev 10-09) 8823 Guide (chapter-page #) Additional minor revisions Now available online at IRS Newsletters IRS Newsletter (#) (provide further guidance) Private Letter Rulings PLR (#) (cannot be cited as precedent) Rural Development Formal guidance: HB HB (paragraph/page#) "Multi-Family Housing Asset Management Handbook" HOME Formal guidance: 24 CFR Part 24 CFR Part 92 (section) "Compliance in HOME Rental Projects: A Guide for Property Owners" HOME Guide HOME &the Low-Income Housing Tax Credit Guidebook Technical Guide for Determining Income and Allowances for HOME program (2005) HOME Tech Guide (page) Online tool: A web-based income calculator: HUD.gov _ Keyword search HOME Income calculator Zeffert & Associates

3 Introduction The Goal of this Training The purpose of this training is to provide information for all interested personnel to successfully provide housing when tax credits are combined with other federal funding programs. In General It is important to understand all the rules for each program at a property in order to complete the puzzle. There are several possible ways that rules from different programs will relate to one another at a property that has multiple programs. These include: 1. Programs adjust by design. Apply rules as designed. 2. There is no corresponding rule. Apply the rule. 3. There are corresponding rules: a. The rules are different. Apply both rules independently. b. One program rule is more restrictive than the other. Apply the most restrictive rule that satisfies both programs. 4. The rules conflict. Talk to the important players (owner, investors and compliance monitoring agencies) to establish an approach. Example #1: Conforming Rules LIHTC/HUD/RD: Utility Allowances rules require the use of the RD or HUD UAs for LIHTC purposes and allows the use of HUD UAs for voucher holders. LIHTC & HOME: Rents for OI households whose rent is based on income only pay up to the LIHTC max rent. LIHTC/Bond: The Available Unit Rule is generally a project rule for bond properties, but becomes a building rule when bonds finance LIHTC properties. Example #2: No Corresponding Rules General Rules LIHTC/HUD: Application fees must not be charged because HUD prohibits these though the LIHTC has no application fee requirements. Criminal, Credit Background Checks and Citizenship: Other than collecting race and ethnicity data, the LIHTC program regulations do not speak to the above rules, therefore the other programs rules should be followed. Zeffert & Associates Page 1

4 Example #3: Corresponding Rules are Different Student Eligibility LIHTC/RD&LIHTC/HUD: The tax credit student eligibility rules are completely different than the rules for HUD/RD/HOME programs. For instance, the Tax Credit program eligibility rules focus on households made up of FULL-TIME students of any age, while HUD/RD/HOME rules apply to individual PART-TIME AND FULL-TIME students at institutes of higher learning through age 23. Therefore there is no practical way to combine the rules and households or individuals that meet one set of rules may be completely ineligible under the other. Both rules must be applied independently. Example #4: The Most Restrictive Corresponding Rule Income Limits All Programs: When selecting income limits the most conservative limit must be selected which will satisfy all programs involved. A Helpful Tool: The Zeffert Quick Comparison Chart Zeffert & Associates Page 2

5 Introduction and Program Backgrounds Low Income Housing Tax Credit LIHTC The LIHTC program started with the Tax Credit Reform Act of Owners receive a reduction in tax liability in exchange for providing affordable housing. This is not a deduction a credit is much better. Tax credits are T a federal subsidy program like HUD or Rural Development. Tax Credits can be based on costs associated with: New construction of a property Rehab of a property and Acquisition of an existing property (only if it is also rehabbed) Retention of Tax Credits To retain the credits, a development must: 1. Rent to qualified households and prove that they qualified through supporting documentation. 2. Keep rents affordable 3. Maintain the property in good repair, decent, safe and sanitary. RD s Mission Statement Rural Development RD "To increase economic opportunity and improve the quality of life for all rural Americans. Development (RECD) then Rural Development (RD). RD Handbooks HB page 1-1 Three handbooks were developed to provide guidance in the new 7 CFR 3560 regulations. Our prime concern in this course is the HB : Asset Management. This handbook provides multi-family housing staff with guidance about the Agency s procedures for overseeing borrowers performance in meeting their responsibilities under the program. Its goal is to help Loan Servicers in Field Offices provide consistent, effective oversight of projects financed by the Agency to ensure that they are operated in accordance with applicable regulatory and administrative requirements. This role is defined as asset management. Programs Covered This handbook presents the Agency s asset management procedures for: Section 515 Multi-family Projects o Rural rental housing (including congregate housing and group homes) o Rural Cooperative Housing Section 514/516 Farm Labor Housing o Off-farm labor housing o On-farm labor housing Zeffert & Associates Page 3

6 HOME Funds Are. a HUD program under the HOME Investment Partnership Act, is found in Title II of the Cranston-Gonzalez National Affordable Housing Act. It was first funded in Since then, it has funded approximately $8.7 billion in housing in over 330,000 units in the US. HOME HOME designates specific units that are HOME units based on the amount of HOME funding proportionate to the total cost of the project. HOME requirements generally apply only to the HOME units. HOME and Tax Credit HUD user.gov LIHTC Database According to HUD HOME funds are involved in roughly 30% of the recent annual LIHTC deals in the country. HOME Guidance To explain HOME requirements, HUD has provided additional direction. This includes: Compliance in HOME Rental Projects: a Guide for Property Owners (2009) Technical Guide for Determining Income and Allowances for the HOME program (2005) A web-based income calculator: Keyword search HOME Income calculator HOME Compliance Monitoring HOME Funds are distributed by Participating Jurisdictions (PJ), who also monitor compliance. The HOME regulations were revised in July of Key changes will be noted with this symbol. Fixed or Floating? HOME Guide 1.8/7 A property with fixed HOME units will have specific HOME units. These specific units may change from HIGH to LOW-HOME status, but they never have to change to non-home units, and non-home units at these projects are never subject to HOME restrictions. A property with floating HOME units has to maintain a mandated mix of HOME units, but specific units may switch status. HOME units and non-home units may be exchanged as necessary. HUD intended that floating HOME properties have all comparable units. Projects with different bedroom sizes generally should be fixed HOME. Examples: Fixed HOME units: Unit #101 is assigned as a HOME unit. Unit #101 will keeps its designation as a HOME unit for all of the affordability period. Floating HOME units: At project commencement unit #201 is assigned as a HOME unit. If circumstances require, in the future comparable unit #202 can be designated HOME and #201 can become non-home. 24 CFR (c)(3)(ii)(A) The 2013 regulation revision explicitly requires PJs to specify the fixed or floating designation in the HOME agreement. Effective: for HOME commitments on or after August 23, 2013 Zeffert & Associates Page 4

7 Qualifying Households Qualifying Households: Overview Steps that we will discuss in the main headers in this section: Student status Income limits Verification of household income/assets Zero income households/unsecured Income Employment income calculations range of hours Change in household size Certification form Effective dates Recertification Eligibility and increases in income Deductions and allowances LIHTC Student Status 42 (i)(3)(d) & 8823 Guide Chapter 17 The Code forbids tax credit units being used for dormitories. How do we avoid this at LIHTC properties? Generally, households made up entirely of full-time students do not qualify. Full-Time Students Attend a school with facilities and regular student body. Attend all or parts of any 5 months out of the year (not necessarily consecutively). Are considered full-time by the school that they attend Includes students in elementary, junior and senior high schools, colleges and universities Verification 8823 Guide 17-2 & Exhibit 17-1 on page 17-5 Student status questions must be asked at move-in (and status verified, if necessary). It also must be reexamined annually. The IRS has provided a sample form in the revised 8823 Guide. Student Status Exceptions FT student households must meet one of FIVE exceptions continually to live in an LIHTC unit while everyone is a FT student: For these exceptions, all members must meet the exception: 1. All students are married and ENTITLED TO file a joint tax return. Rev Rul TE: same-sex couples married in ANY state that recognizes same-sex marriage meet this exception in all states 2. All adult members are single parents with minor children, the adult is not a dependent of any third party, and the children are only claimed by a parent. For these exceptions, one member qualifies a household: 3. The household includes a member who receives Title IV welfare (TANF in many states). 4. The household includes a member who formerly received foster care assistance. 5. The household contains a member who gets assistance from the Job Training Partnership Act (JTPA) or similar programs. Note: the Workforce Investment Act replaced JTPA in 2000 Zeffert & Associates Page 5

8 RD Unnumbered letter dated 1/11/2007 RD adopted HUD s Section 8 student eligibility rules in early HOME HOME adopted the Section 8 student rules in the 2013 regulation revision. 24 CFR 92.2 and Applicability Chart Page 3 The 2015 applicability chart clarified that: The new restrictions apply to ALL HOME units and it was effective for all income determinations after August 23, A household that is eligible at move-in but later becomes student-ineligible is treated as an overincome households, with the resulting action depending on if the unit is fixed or floating HOME. Student Eligibility: Section / 3-40 to 41 To be eligible for assistance, any adult who attends an institute of higher learning (full- OR part-time) must be one of the following (Note that the focus is on adults age 18-23): A dependent of the household living with parent Over age 23 A veteran Married A parent with dependent child(ren) A disabled individual who was receiving assistance prior to November 30, Be Independent from parents OR 2. Have parents who are income-eligible 1. To prove that a person age is independent owners must verify (and document) that they: A. Are of legal contract age under state law, AND B. Have established a separate residence ** from parents for at least a year OR meet the U.S. Dept. of Education definition of an independent student ***, AND C. Are not claimed on a parent's tax return, AND D. Get (or do not get) financial help from parents **Dorms and other student housing do not qualify as a separate residences ***U.S. Department Definition of independent student is one who: Is age 24+ old by December 31 of year Is an orphan or ward of state through age 18 Is a veteran Has a legal dependent (example: child or parent) Is a graduate or professional student Is married Exceptions that are not already covered above: b, d (parent) & e 2. If the student is T independent, then the parents must be income-eligible. The parents may sign a declaration and certification of income. They must be below the HUD LOW income limit The income limit that will be used: If parents live in the U.S. LOW income limit for the county that the parents live in If parents live outside the U.S. LOW income limit where the property is. If parents are not living together: If widowed or single get a declaration from the single parent If divorced or separated get declaration from both parents. If one parent s location is unknown get a declaration from the single parent along with explanation of the situation and stating that no financial assistance is received from the absent parent. An owner may verify further (tax returns, etc.) if the parents certification is questionable. Zeffert & Associates Page 6

9 The student is not eligible if the parents refuse to provide a: Declaration of their income, AND Statement of whether they provide student financial assistance or not. Completing the Puzzle Student Eligibility LIHTC or Bond with other programs: The tax credit and tax exempt bond student eligibility rules are completely different than the HUD/RD/HOME rules. For instance, the Tax Credit & Bond program eligibility rules focus on households made up of FULL-TIME students of any age, while HUD rules apply to individual PART-TIME AND FULL-TIME students through age 23. Therefore there is no practical way to combine the rules, and households or individuals that meet one set of rules may be completely ineligible under the other. A household must meet BOTH requirements. Zeffert & Associates Page 7

10 Supplemental Information HUD Section 8/RD/HOME Student Eligibility Flow Chart Is anyone in the household a student at an institute of higher learning under age 24? Are any of the following true about the student? A dependent of the household A veteran Married A parent with dependent child(ren) A disabled individual who was receiving assistance prior to November 30, 2005 This is an eligible Household Is the following true regarding the student? S/he is of legal contract age per state S/he is not claimed on parent s tax return Parents have supplied a certification regarding financial help provided Is the following true regarding the student? S/he has established a separate household from parents for at least a year Is the student: An orphan or ward of the state through age 18 Living with a legal dependent Example: parent A graduate or professional student Are the student and his/her parent s income eligible? Zeffert & Associates Page 8

11 LIHTC Rev Rul and Guide Chapter 4 The Multi-family Tax Subsidy Program ( MTSP ) LIHTC/bond limits for each county can be found at The LIHTC/bond MTSP income limits never go down from one year to the next once a specific property is placed in service. Your minimum set-aside (see below) will determine the max limit for your property (50% or 60% of the income for the county the property is in). There are also HERA Special limits (which may be selected-if available in your county-for projects placed in service in 2008 or earlier) and rural limit options for some properties. New limits must be implemented within 45 days of release. Limits: Standard Guidelines Annual Income Limits Limits are listed by family size properties use MTSP 50% limits (formerly HUDS VERY LOW limit) properties use MTSP 60% (formerly HUD very-low 50% limit X 1.2) Rural and HERA Special Income Limits Some counties have special limits available to them. These are counties that either: Income Limits H.E.R.A. Housing & Economic Recovery Act Had their 2007 or 2008 income limits frozen under HUD hold harmless policies or 2. 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-bondfunded) projects). The process of selecting limits is now considerably more complex. The flow charts in the Supplemental Information section on later pages provide a method for selecting the correct limits. You may use this income limit: If this applies: Last Year s MTSP Limits 1. The published income limits for the project s county went down for the current year. 2. The project was in service prior to the release of the new limits. HERA Special 1. HUD lists this option for the property s county. 2. The project was placed in service in 2008 or earlier. National Non-metro 1. The project isn t funded with tax-exempt bonds. 2. The project is in an area determined by USDA (Rural Development) to be rural. Zeffert & Associates Page 9

12 HB /6-1 RD The RD program uses RD Program Income limits. These vary depending on the RD program, are MSA or county-specific and may go up or down any given year. Applicants are given priority based on whether they are very-low, low or moderate (low limit + $5,500) income. Households must qualify based on adjusted income. Limits are based on Area Median Incomes (AMI) and family size. 1. The very low-income limit is 50% of the AMI 2. The low-income limit is 80% of AMI 3. The moderate-income limit is $5,500 added to the low-income limit Note: Unless the property has received a variance from RD to rent to over-income households, above moderate-income households are T eligible. HOME The HOME program uses HUD HOME income Limits. Whether households must qualify based on gross or adjusted income depends on which of three methods of income determination are required by the PJ (see "Income Eligibility Determination"). HOME limits are county or MSA specific and may go up or down any given year. HOME Income and Rent Limits Low HOME Income limit = 50% AMI (very low). Tenant Rent + Rental Assistance + Utility Allowance + = HOME Rent High HOME Income limit = 80% AMI Properties with 5 or more units must have at least 20% of their units low HOME. 24 CFR (l)(2)(vi) and (k)(2)(v) In a change related to the new HOME regulations, HUD explicitly permits participating jurisdictions to limit HOME projects to specific populations, including to persons in a specific occupation (e.g., artists, police officers, or teachers). PJs must include these uses in their Consolidated Plan Annual Action Plans. Effective: August 23, 2013 Completing the Puzzle Income Limits All Programs: When selecting income limits the most conservative limit must be selected which will satisfy all programs involved. Completing the Puzzle Occupancy Preferences The LIHTC general public use provisions are more restrictive than the HOME rules. Housing for certain trade groups, for instance, is prohibited for LIHTCs but allowed for HOME. The LHITC rules must be followed in these cases to avoid potentially disastrous noncompliance. Hopefully developers will weigh this carefully before they accept any HOME money with occupancy restrictions attached. Zeffert & Associates Page 10

13 Workshop: Income Limits Zeffert & Associates Page 11

14 Supplemental Information Finding the Correct Current MTSP Income Limits Option # 1 For projects in states where the national non-metropolitan limit is GREATER than the state non-metropolitan limit. If in doubt as to the above, this option will yield accurate results. First Step: Get the current HUD MTSP limits fromwww.huduser.org/datasets/mtsp.htm Does the project have nonallocated tax credits through section 142 bonds? Is the project in a rural area, as defined by USDA? Link to check: do?pageaction=sfp&navkey=property@12 Does the project s county have HERA special limits listed on HUD s MTSP limit sheet? Was a building in the project placed in service prior to 01/01/2009? Does the project s county have HERA special limits listed on HUD s MTSP limit sheet? Was a building in the project placed in service prior to 01/01/2009? Was a building in the project placed in service prior to 01/01/2009? Are the HERA special Limits or any MTSP limits since 2009 HIGHER than the National Non-metro limits (listed below for 2014)? HH Size % $18,400 $21,000 $23,650 $26,250 $28,350 $30,450 $32,550 $34,650 60% $22,080 $25,200 $28,380 $31,500 $34,020 $36,540 $39,060 $41,560 USE HIGHEST HERA SPECIAL or MTSP LIMITS applicable to the property since 2008 USE Highest MTSP LIMITS applicable to the property since 2009 Are the current MTSP Limits HIGHER than the National Nonmetro limits? USE Highest MTSP LIMITS applicable to the property since 2009 USE CURRENT NATIONAL N- METRO LIMITS (After confirming with state HFA) Final step: if other programs are on the project (such as HUD, RD or HOME), they each have their own limits. Use the lowest limits for each unit, as applicable. Zeffert & Associates Page 12

15 Finding the Correct Current MTSP Income Limits Option # 2 For projects in states where the national non-metropolitan limit is LESS than the state non-metropolitan limit. If in doubt as to the above, Option # 1 should be used First Step: Get the current HUD MTSP limits fromwww.huduser.org/datasets/mtsp.htm Does the project s county have HERA special limits listed on HUD s MTSP limit sheet? Was a building in the project placed in service prior to 01/01/2009? Was a building in the project placed in service prior to 01/01/2009? USE HIGHEST HERA SPECIAL or MTSP LIMITS applicable to the property since 2008 USE Highest MTSP LIMITS applicable to the property since 2009 USE Highest MTSP LIMITS applicable to the property since 2008 Final step: if other programs are on the project (such as HUD, RD or HOME), they each have their own limits. Use the lowest limits for each unit, as applicable. Zeffert & Associates Page 13

16 Verification of Household Income/Assets In General Methods of verification for most programs are required in order of preference outlined below: 1. Third-Party Verification 3 rd -party requests must be made directly from the third party and they must not pass through the applicant s hands. Fax, , view an internet site or mail all requests. Repeat if necessary. 2. Review of Documentation Reasons to use documentation that the household brings in: 1. If a third party verification is not needed, such as birth certificates or divorce papers. 2. If 3rd party verification is delayed for 2 weeks Include in the file: Note explaining why 3rd party verification was not obtainable. Date-stamped original request & follow-up efforts 3. If a 3 rd party charges for verifications If an employer will not respond, get at least 4-6 consecutive pay stubs. Set a policy as to how many. Keep originals or good copies in the file. 3. Household Affidavit If the first two methods fail, get a notarized statement or a signed affidavit detailing the needed information. This is only a last resort or supplemental to other verification. LIHTC Treas.Reg.1.42(b)(1)(vii), 8823 Guide 4-7 & 22,Rev. Proc , B/5-59,HUD Notice IRS Regulation requires the gathering of documentation. Informal IRS Guidance, however, indicates that 3rd party verification of all income and all assets (when assets are over $5,000) and student status is required; gathered documentation, then self-affidavit are second and third-choice options. Verifications are valid if received up to 120 days prior to the effective date. The IRS permits use of sworn statements declaring the household s assets when the total combined assets do not exceed $5,000. HUD's EIV data gathered for recertifications cannot be used for LIHTC purposes Guide 4-7,Rev. Proc If the total household combined assets exceed $5,000, 3 rd party verification must be obtained for all assets. It is not required to 3rd party verify assets if they do not exceed $5,000. A thoroughly completed tenantaffidavit may suffice. This will not apply when other programs are on-site that require verification of ALL assets (such as RD and HUD). Your state HFA must approve the use of this form. HUD RD HB A/6-15 through 17, HUD Notice rd party verification of all income, assets, deductions, allowances and expenses and student status are preferred. Gathered documentation, then self-affidavit are second and third-choice options. Verifications are valid if dated within 90 days of the effective date of the certification and can be valid for an additional 90 days with verbal clarification. HUD's EIV data gathered for recertifications cannot be used for RD purposes. HB A/6-15 through 17 All household assets must be 3 rd party verified. Zeffert & Associates Page 14

17 HOME HUD allows PJs and states to choose from three methods for determining and verifying income. 1. Tax returns 2. Section 8 method this is the most common method. 24 CFR (b)(2) The 2013 HOME revision has removed a 3 rd income definition option, the census longform. PJs must discontinue the use of this definition. Effective: August 23, 2013 HOME Guide 3.2 E2 & 5/47, F3/48, HUD Notice When #3 above is selected by the PJ, "source documents" prepared by a 3rd-party for all income and assets are required to determine initial eligibility and every 6th year of the project's affordability period. Self-affidavit and program assistance verification (such as from a rental assistance voucher provider) are not allowed for these years. The certification, supported by source documents, is valid for 6 months from the date it is completed. For other years, self-affidavit or other program assistance verification may be used. HUD's EIV data gathered for recertifications cannot be used for HOME purposes. 24 CFR The new HOME regulations require 2 months of pay history when source documentation is used (for example, paystubs). HOME Guide 3.2 E2 & 5/47, F3/48 Assets must be verified using 3rd-party "source documents" for initial eligibility and every 6th year of the affordability period. Income may be self-certified or program assistance verification (such as from a rental assistance voucher provider) may be used for other years. Completing the Puzzle Verification of Income/Assets Most programs use a variation of HUD s methods of verification. EIV data must only be used for authorized HUD programs and separate files are required. LIHTC/HUD or RD: Assets must be 3 rd -party verified. LIHTC/HOME units: must use 3 rd -party verification at move-in, including for assets. For 100% projects that are not subject to LIHTC income recertification, self-affidavit may be used for HOME purposes for years that are not the 6 th year of the project s affordability period. Zeffert & Associates Page 15

18 Workshop: Verification Lifespan Zeffert & Associates Page 16

19 LIHTC Zero Income Households/Unsecured Income 8823 Guide 4-7, 4-8 and 4-33 Although HUD allows for zero income households, it also has an option for interim certifications when there are changes. The LIHTC program does not have an interim option, and certification must establish a household's income for the next 12 months as accurately as possible. This crucial difference between the HUD and LIHTC programs leaves an area which state HFAs and the owners must interpret. Some HFAs require the estimating of future unsecured income based on history. Others strictly apply HUD rules and only count income that is imminent and verifiable. The 8823 Guide suggests using last 12 month history for zero or sporadic income households, but seems to indicate that changes in income that were not known or verifiable at certification time do not need to be included. This may suggest that zeroincome households are a concern, but that not all unsecured income is necessarily an issue. RD HB A4/6-9,Attachement 6B RD does not consider zero-income households to qualify. Basic expenses that the household will have to meet are verified and counted as income. Attachment 6B to the RD handbook is an extensive form designed to get detailed expense information from a household claiming zero-income. HOME HOME GUIDE 6.2E/46 HOME guidance does allow for zero-income households, requiring that the past 12 months average income (if any) be used.. Completing the Puzzle Zero Income/Unsecured Income LIHTC/RD: RD has the most restrictive federal rules when it comes to zero-income households and these must be applied. Zeffert & Associates Page 17

20 Employment Income Calculations: Range of Hours LIHTC By regulation, we count LIHTC income as does the Section 8 program. However, it has generally been accepted as best practice by most states that the LIHTC program should use the more conservative approach of using the HIGHEST in a range (i.e. 40 for hours) since the household s rent is not based on their income. Some state HFA s do apply the HUD method, however. The IRS has not addressed this issue. RD RD does not directly address this issue. However, the HUD approach is generally considered to apply (i.e. if verification list hours, use 35). HOME HOME Technical Guide page 6 HUD consistently refers to "average hours" in its technical guidance for the HOME program (i.e. if verification list hours, use 35). Completing the Puzzle Employment Income Calculations (Range of Hours) LIHTC/RD and LIHTC/HOME: Most State HFA s require that the highest of a the range be used. In these cases, the different requirements will result in a difference in the gross income that is used on the TIC and the gross income that is used on the RD It is crucial that the higher of the range is not used for RD as the income calculations directly affect the total tenant rent payment. Zeffert & Associates Page 18

21 Changes in Income and Household Size LIHTC 8823 Guide 4-4 There are no interim certifications in the LIHTC program. Individuals added to households during a certification year are income-certified individually and their income is added to the most recent TIC. The total income is then tested to determine if the available unit rule has been triggered (see "Increases in Income"). The household is considered the same household as long as one original member remains. Increases in income do not require a household to move out. RD HB B/38, 6.30/40 Borrower must complete an interim recertification whenever there is a change in household income of $100 of more per month. Additionally, borrowers must complete a certification for changes of $50 per month, only if the tenant requests that such a change be made. If the household s income increases above the moderate income limit, the household is required to move out. HOME HOME Guide 3.5 & 6/65-82 The HOME program does not require that an interim certification be completed when an increase in income occurs, however, increases in income determined at annual recertification may result in changes to a unit's HIGH or LOW HOME status, depending on if the HOME agreement designated "fixed" or "floating" HOME units. Increases in income do not require that a household to move out. Completing the Puzzle Changes in Income and Household Size LIHTC/RD: Changes in income and/or household size for the RD and HUD program require that an interim recertification be conducted, however only changes in household require any action be taken for the tax credit program. This means that while you may have to complete an interim certification for RD or HUD when a change in income occurs, this change does not require that a new TIC be executed. Workshop: Changes in Income Zeffert & Associates Page 19

22 The Certification Form is Called LIHTC RD HOME BOND Tenant Income Certification (TIC) is an informal, but commonly used description. HB A/6-15 RD properties RD Form The HOME Program does not have a specifically mandated certification form, however PJ s or the HOME agreement may require a specific form be used. The HTC TIC is often acceptable. Effective Dates LIHTC 8823 Guide 4-22, 4-25, 5-1 Move in: The effective date is the date the tenant actually moves into the unit. Initial certification for in-place residents of Acq/Rehab properties: The effective date is the date of acquisition for households that were certified within 120 days of the acquisition date. After that time, the effective date is the date of the last signature. Recertification date: Effective date is the anniversary of the effective date of the original tenant income certification (for less than 100% LIHTC projects where recertification is required). RD HB page 6-37 & 38 Move in date: The Effective date is the 1st of a month. If the household moves in after the 1st of the month, the effective date is the first of the full month after the actual date of move in. Recertification: The effective date is the anniversary of the effective date of the last certification. HOME HOME Guide 3.2 E1/46, F6/49 The HOME program does not mandate effective dates. Income certification must be completed before and within 6 months of move-in. Recertification must be completed annually, but not necessarily on the anniversary of move-in. The bond program does not mandate initial or recertification effective dates. Tax credit rules regarding effective dates generally are used as a model. Zeffert & Associates Page 20

23 Recertification LIHTC 142(d)(3)(A) (see 42(g)(4)), Treas. Reg (b)(1)(vi), 8823 Guide chapter 5 For Projects that are less than 100% LIHTC, the Owner/Agent must recertify each household's income and student status annually. For 100% projects, the Owner/Agent must recertify student status annually. IRS guidance states that the recertifications should be conducted using an effective date of the anniversary of the initial certification. State agencies commonly add requirements. RD HB /6-37 through 39 Assisted households must be certified at move in and at least annually. If certain income and household changes occur, a new certification must be conducted. A new certification must then be completed no later than a year from the last certification. HOME HOME Guide 3.2F6/49 HOME households must be certified at move in and annually. Full 3 rd party recertifications are only required to be completed every 6 th year of the affordability period. The HOME program does not mandate dates for the annual cycle, allowing all recertifications to be conducted at once for a year. Interim certifications are not required. Completing the Puzzle Cert Forms, Effective Dates & Recerts CERT FORMS: LIHTC combined with all other programs: Some HFA s will allow the use of the RD certifications but most require that the tax credit TIC form be completed in addition to the other programs cert form. EFFECTIVE DATES: LIHTC/RD: Effective dates for initial certification will never match unless the move in date occurs on the 1 st of the month. If an annual cert is conducted on the RD schedule for a move in after the 1 st of a month, it would be late from an LIHTC standpoint. It is permissible for a RD recertification to be conducted after move-in in order to align the recertification dates. RECERTS LIHTC/RD: For 100% Tax Credit properties combined with HUD or RD, a full income recertification must be completed annually for HUD/RD purposes on the HUD/RD effective dates. Less than 100% LIHTC properties will need to conduct recertifications per both programs. This is generally only a problem for acquisition/rehab HUD properties, where two certifications may always need to be done. See Effective Dates above. LIHTC/HOME: For 100% Tax Credit Projects with HOME funding, a full income certification with 3 rd -party verification must be completed every 6 th year of the HOME affordability period. Example: the first year of the affordability period for a HOME/100% LIHTC project was A tenant moved in on 03/15/11. Self-certification is acceptable for 2012, and a full recert will be due for HOME purposes in 2013, the 6 th year of the affordability period. Zeffert & Associates Page 21

24 Workshop: Effective Date LIHTC Over-Income Households 42(g)(2)(D)(ii), Treas. Reg , 8823 Guide chapter 1 For less than 100% LIHTC properties, household income that is over 140% of the current income limit at recertification is "over-income". Over-income households continue to qualify as LIHTC households as long as the next available unit of the same or smaller size IN THE BUILDING is rented to LIHTC households until the applicable fraction is restored not counting the over income households. Once the applicable fraction is restored, the household may be raised to market rent, but cannot be required to vacate the unit. The IRS refers to this rule as the "Available Unit Rule" (AUR) or "Next Available Unit Rule" (NAUR). It is also commonly referred to as the "140% rule". RD HB /40 As household income increases, rent increases up to the maximum rents. For households whose income upon recertification exceeds the moderate income limits must vacate the unit within 30 days or at the end of their lease, whichever is longer. HOME HOME Guide 3.5 & 6/65-82, Attachment 3-4/91 & Attachment 3-5/93 Increases in household income upon recertification may result in re-classification from LOW to HIGH HOME rents. Once the household income exceeds the 80% limit, the households rent is determined based on 30% of the household s adjusted income. The rent charged cannot exceed market rents in the area. LOW HOME households whose income exceeds the HOME 50% limits and HIGH HOME households whose income exceeds the HOME 80% limits are "over income". Once a household is over income, specific actions are then mandated by the program that differs depending on whether the project is "fixed" or "floating" HOME as determined in the HOME agreement. See next Supplemental Information section for further details. Zeffert & Associates Page 22

25 Completing the Puzzle Over-Income Households LIHTC/RD: While the LIHTC program is explicitly designed to allow a household to stay as income increases, RD requires that the household vacate if the households income exceeds the moderate income limit. This creates a genuine potential conflict. Some RD offices allow residents to stay and reassign any Rental Assistance slots previously assigned to the unit. LIHTC/RD & LIHTC/ HOME: At an LIHTC acqu/rehab, in-place tenants may not qualify for tax credits, but must not be required to vacate their units. See the Relocation Act of 1970 (URA). HOME/LIHTC: projects, the HOME program adopts the LIHTC rent limit when rent is based on income. Deductions and Allowances LIHTC The LIHTC program does not permit deductions when determining eligibility. LIHTC rents are not directly based on household income. RD HB C/5-9 through 12 RD has the same 5 types of deductions as HUD used to determine adjusted income and rent. 5 types of allowances 1. Dependent 2. Child care 3. Disability expenses 4. Medical 5. Elderly HOME HOME Guide Attachment 3-4/91 For households where rent is based on adjusted income (i.e. for households that exceed 80% AMI), the HOME program has the same 5 types of deductions as HUD used to determine adjusted income and rent. Completing the Puzzle Deductions and Allowances LIHTC/RD properties use gross income to determine eligibility. Then use the deductions to calculate adjusted income to establish correct rents. Zeffert & Associates Page 23

26 Supplemental Information: Increases of Income at Recertification HOME Guide 3.5 & 6/65-82, Attachment 3-4/91 When a LOW-HOME household s income increases above 50% AMI, but remains less than the HUD low (80%) limit: For ALL HOME Properties Next comparable HIGH-HOME unit must be rented to Very Low Income Household (50%) and redesignated as a LOW-HOME Unit. When replaced, the rent MAY be increased to the HIGH-HOME rent. Non-HOME units are never affected. If the unit is LIHTC, rent based on adjusted income is not charged. When a LOW or HIGH-HOME household increases to exceed the HUD low (80%) limit: Fixed HOME Floating HOME As soon as the lease allows, rent must be raised to 30% of adjusted income, with cap at Market rent. If a LOW-HOME unit, the next HIGH-HOME unit must be rented to a LOW-HOME household. If the unit is LIHTC, rent based on adjusted income is not charged As soon as the lease allows, rent must be raised to the lower of 30% of adjusted income or Market rent. The next available unit in the property must be rented to a HOME-eligible household to restore the original balance of LOW/HIGH-HOME set-asides required by the PJ. Once replaced, the over-income unit may be treated as non-home. If the unit is LIHTC, rent based on adjusted income is not charged Monthly Rent for households who are over 80% limits: (140% for HTC/HOME Units) Gross Income Deductions = Adjusted Income X 30% 12 Zeffert & Associates Page 24

27 A Few Words of Encouragement We Do this Job Well Recent government reviews of the various programs have been good or show improvement. It is a challenge to learn these programs well, but the more effort something takes, the more gain is realized. These programs are active in all states, and qualified personnel are in demand. Not all jobs provide a certain amount of personal security and are also beneficial to our communities. We strongly feel that affordable housing-related jobs are. Zeffert & Associates Page 25