Income from Assets

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How to Calculate and Verify
Income from Assets
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Calculating
Income from Assets
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Income from Assets
 Annual income includes income a
household receives from assets to which
at least one member has access
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Income from Assets cont’d
 Income from assets must be counted even if the
family does not directly receive the income
 E.g., A household member allows interest
generated by a savings account to accrue in the
account and never uses the interest to meet their
living expenses, but it is still included as income
generated by the asset
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Income from Assets cont’d
 There is no asset limitation applied when
qualifying a household for the LIHTC program
 There is no limit to the value of the assets a
family may own and occupy an LIHTC unit, and
they are not required to liquidate their assets to
qualify for the LIHTC program
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Count as an Asset
 The current balance in a savings account
 The average 6-month balance in a checking
account
 Cash, including that held at home or placed
in a safety deposit box
 Cash value of a certificate of deposit or
money market account
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Count as an Asset cont’d
 The cash value of a whole life or universal
life insurance policy
 The cash value of real property
 The cash value of stocks or bonds
 The cash value of T-bills and other
government investments
 Personal property held as an investment
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Count as an Asset cont’d
 Company sponsored retirement accounts,
including 401-K accounts, when the resident
has access to the account
 Personal retirement accounts, such as an
IRA, Roth-IRA, SEP-IRA, etc., including
when calculating its cash value would require
subtracting a premature withdrawal penalty
that would be paid to the IRS or financial
institution
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Do Not Count as an Asset
 Personal property such as a car, furniture,
engagement rings
 Assets to which a family has no access such
as the home owned by a battered spouse
 Term life insurance
 Cooperative unit in which an applicant lives
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Do Not Count as an Asset cont’d
 A business or farming operation in which an
applicant actively participates
 An annuity account when a family member
has no access to its principal balance
 A trust account when a family member has
no access to the principal balance
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Calculations for Assets
 An owner must calculate two numbers for
every asset they list on a resident’s tenant
income certification:
 Cash value of the asset
 Actual income the asset will produce in the next
12 months
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$5,000 Rule
 When calculating the income from a family’s
assets, if the cash value of their assets total:
 $5,000 or less, use the actual income their assets
are projected to produce in the next 12 months
 More than $5,000, use the greater of the:
 Actual income from assets; or
 Imputed income from assets based on a passbook rate of
2%
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Calculations for Assets cont’d
 The cash value of an asset is never included in
a resident’s annual income – e.g., a $2,000
savings account is never included as $2,000 of
income; the interest it produces is what we
include in the household’s gross annual income
 An owner determines the cash value of a
resident’s assets to know if they total more than
$5,000 indicating that the owner must
implement the $5,000 Rule
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Cash Value of an Asset
 Cash value of an asset is the amount the
family would receive if they converted the
asset to cash
 The cash value is the market value minus the
reasonable expenses that would be incurred
in selling or liquidating the asset
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Asset Liquidation Expenses
 Reasonable expenses to sell or liquidate an
asset include:
 Penalties for premature withdrawal
 Broker and legal fees
 Settlement costs for real estate transactions
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Cash Value of Real Estate







Market Value
- mortgage balance
------------------------------------Owner’s Equity
- Cost to Covert to Cash (sellers costs)
------------------------------------Cash Value of the Property
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Assets Owned Jointly
 Assets owned by more than one person are
prorated according to the percentage of
ownership
 Determining percentage of ownership can be
a judgment call
 If no documentation of the percentage of
ownership exists, split evenly between the
multiple owners
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Assets Disposed for Less than Market Value
 Count an asset disposed for less than market
value during the 2 years preceding the
certification or recertification
 Value of the asset is the difference between
the cash value of the asset and the amount
received in exchange for the asset
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Disposed Asset Example
$65,000 market value of house
- $1,700 costs to sell to daughter
------------------------------------------------$63,300 cash value
10,000 sales price to daughter
------------------------------------------------$53,300 Value of asset disposed
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Disposed Assets Rule cont’d
 Anything included as an asset can be
included as an asset disposed for less than
market value
 Rule applies if the cash value of assets a
household disposed exceeds the amount
received in exchange by more than $1,000
 Do not include assets disposed due to
foreclosure, bankruptcy, separation or divorce
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Trusts
 Revocable Trusts
 Family member has the right to withdraw the
funds in the account
 Is treated as an asset
 Cash value is the amount the family member
would receive if they withdrew all that could be
withdrawn
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Non-Revocable Trusts
 A trust is non-revocable if no family member has
access to its principal and is not an asset
 If the family has access to the income it produces
but not its principal, the income is counted in
annual income but the trust is not listed as an
asset
 Special needs trusts are often non-revocable
trusts that produce an income stream for a person
with a disability
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Annuities
 When an annuity holder:
 Still has access to the principle balance, count the cash
value as an asset and the interest it is projected to
generate as income from the asset
 No longer has access to the principle balance but
receives an income stream, count the income stream
as annual income
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Verifying
Income from Assets
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Processing LIHTC Applications
 The application must require the household
supply sufficient detail regarding their annual
income, and other characteristics to make an
accurate assessment of their eligibility
 Regarding their assets, an applicant must
provide the documentation, sign the required
verification forms, etc… for the owner to
develop a full picture of their assets
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Verification Methods
 Direct third party
 Written – Gold standard for verifying information
in the LIHTC program
 Oral
 Document file if third party verification not
possible because they won’t respond to
requests for information
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Verifications cont’d
 Review of documents – Utilize information
received from the applicant when it is not
available through a 3rd party





E.g., 4 – 6 current consecutive pay stubs
Bank statements
Broker statements on stocks, bonds, etc…
Property tax bills for real estate
Insurance binders
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Verifications cont’d
 Tenant certifications when information is
unavailable by either methods
 Check HFA acceptance of certifications
 Know if your HFA requires these
statements to be notarized or witnessed
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IRS Revenue Procedure 94-65
 IRS issued Revenue Procedure 94-65
regarding the verification of assets
 If the total cash value of the family assets no
more than $5,000, the family can self certify
the actual income from the assets
 Most states have a required form for this
purpose
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Verification Timing
 Verified information is valid for 120 days
 Once information is over 120 days old, it is
no longer usable as part of a tenant income
certification
 Even if another program providing assistance
to a resident requires another timeline, info
cannot be more than 120 days old on the
effective date of an LIHTC TIC
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Forms
 The IRS does not require a specific form to be
used as a TIC, or forms to be used to verify a
household’s annual income, student status, etc.
 The forms an owner is required to use are those
issued by their state or city housing finance
agency
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Quiz
Income from Assets
Question 1
A term life insurance policy:
Is always included as an asset.
Is never included as an asset.
Is only included as an asset when the insured
person is 18 years old.
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Answer 1
A term life insurance policy:
Is always included as an asset.
Is never included as an asset.
Is only included as an asset when the insured
person is 18 years old.
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Question 2
An applicant can have no more than $100,000 in
assets to qualify for the LIHTC program.
True.
False
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Answer 2
An applicant can have no more than $100,000 in
assets to qualify for the LIHTC program.
True.
False
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Question 3
A home has a market value of $150,000, and
the owner still owes $50,000 on the mortgage.
Their estimated selling costs are $15,000. The
cash value of the house is:
$100,000
$150,000
$85,000
None of the above.
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Answer 3
A home has a market value of $150,000, and
the owner still owes $50,000 on the mortgage.
Their estimated selling costs are $15,000. The
cash value of the house is:
$100,000
$150,000
$85,000
None of the above.
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Question 4
Because savings accounts currently
generate such little interest, they are not
counted as assets.
True.
False
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Answer 4
Because savings accounts currently
generate such little interest, they are not
counted as assets.
True.
False
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Question 5
Savings accounts owned by or on behalf of
minors:
Are counted as assets.
Are never counted as assets.
Are only counted as assets when the minor is
over 12 years of age.
None of the above.
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Answer 5
Savings accounts owned by or on behalf of
minors:
Are counted as assets.
Are never counted as assets.
Are only counted as assets when the minor is
over 12 years of age.
None of the above.
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Question 6
The family of a resident with a disability
establishes a special needs trust to insure their
income. The resident receives $200/month from
the trust but has no access to the principle.
The cash value of the asset is $2,400.
The trust is not counted as an asset and the $2,400
the resident receives each year from the trust is
included as annual income.
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Answer 6
The family of a resident with a disability
establishes a special needs trust to insure their
income. The resident receives $200/month from
the trust but has no access to the principle.
The cash value of the asset is $2,400.
The trust is not counted as an asset and the
$2,400 the resident receives each year from the
trust is included as annual income.
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Question 7
A resident has a certificate of deposit with a
face value of $3,000. It carries an interest
rate of 3% and a premature withdrawal
penalty of 5%. The cash value of the CD is
$2,850.
True.
False
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Answer 7
A resident has a certificate of deposit with a
face value of $3,000. It carries an interest
rate of 3% and a premature withdrawal
penalty of 5%. The cash value of the CD is
$2,850.
True.
False
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Question 8
Cash held in a safe deposit box is not
counted as an asset.
True.
False
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Answer 8
Cash held in a safe deposit box is not
counted as an asset.
True.
False
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Question 9
Twenty-eight months ago an elderly resident
signed a deed giving her apartment to her
granddaughter. The apartment must be
counted as an asset on the resident’s next
annual recertification.
True.
False
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Answer 9
Twenty-eight months ago an elderly resident
signed a deed giving her apartment to her
granddaughter. The apartment must be
counted as an asset on the resident’s next
annual recertification.
True.
False
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Question 10
The IRS allows a household to self-certify the
income from their assets if their cash value
totals no more than $5,000.
True.
False
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Answer 10
The IRS allows a household to self-certify the
income from their assets if their cash value
totals no more than $5,000.
True.
False
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Questions
Liz Bramlet, President
Liz Bramlet Consulting, LLC
(800) 784 – 1009
[email protected]
www.lizbramletconsulting.com
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