Student Issues Abound for LIHTC
In case you missed it, last month’s Spotlight On Webinar presented by yours truly on behalf of the National Center for Housing Management focused on LIHTC student issues. This month, I’ve decided to write a short re-cap to review the basics of the student eligibility requirements and student income issues as we continue to receive more questions in class and through the eHotline on students than ever before. Maybe it’s because of the Proposed HOME Rule that will potentially be adding student eligibility restrictions to the HOME Program when finalized. Maybe it’s because there are more students taking classes online these days. Or perhaps it’s because we have more and more existing HUD project-based properties who are layering on the LIHTC program through rehabs which adds more complexity to the student issue. Who knows? But now seems to be the time to discuss it, so let’s see what can be covered here.
The Low Income Housing Tax Credit Program has always had student restrictions as part of its eligibility criteria. The basic premise is that a household consisting entirely of full-time students will be ineligible for occupancy at a tax credit property unless they meet one or more of the five exceptions to the rule. These exceptions include where all members of the household are married and entitled to file a joint tax return; where there’s a single parent with a dependent child (or children) and no one else, except for the other parent, is claiming the kids as dependents on their tax returns; where at least one member of the household is receiving public assistance, such as TANF; where at least one member of the household is participating in a job training program such as those funded under WIA; and/or where one member of the household was formerly in foster care, which was added in 2008 with the passage of HERA. There is a sixth exception that has been proposed in H.R. 3076 by Representative Jim McDermott (D-WA) to add the provision that at least one member of the household was formerly homeless, but of course that will not be relevant for managers unless the bill is passed by Congress.
On the income side of things, there are two issues as addressed in HUD Handbook 4350.3 REV-1 that we have to be mindful of relating to student income. Since we use the HUD guidance for LIHTC, then of course these have to be taken into consideration at tax credit properties as well. The first is where HUD directs that only the first $480 of employment of income for dependent full-time students age 18 or older be counted. This is really an issue that has more relevance for HUD programs where a dependent allowance, or deduction, of $480 would then be taken to reduce the family’s Annual Household Income by the same amount counted for the student. Since the tax credit regulations do not include allowances for adjusted income calculations like the HUD programs do, then we simply count $480 for tax credit purposes and leave it at that.
The other income issue for students that I believe causes even more confusion is the question of whether or not to count student financial assistance as income. In Paragraph 5-6E on page 5-10 in the 4350.3, which HUD entitles “Educational Scholarships or Grants”, owners/agents are directed to subtract tuition from financial aid and count whatever is remaining as income for the Section 8 program. For all other HUD programs covered by the Handbook, no student financial assistance is counted as income. The IRS has clarified that at LIHTC properties, the only time you would use the Section 8 formula for student aid is when the tenants are also receiving Section 8 assistance. Otherwise, student financial aid should be excluded from income.
So, those are the basics that we all need to know to properly manage students for LIHTC and most of us feel that is enough, right? When it gets even more complicated is when we have other subsidy layering, or blending, at a site where there are additional student restrictions. To date, this would be if there is LIHTC blended with Section 8 or other HUD project-based programs. Going forward, if the Final Rule for the HOME program is published as proposed then we will also have to use the Section 8 student restrictions for HOME. The two sets of student eligibility restrictions are very different and, obviously, to stay in compliance you will have to manage for both. And this is just one issue that has to be taken into consideration where regulations differ at blended properties.
Still confused? My best advice is for you to register for our Tax Credit Specialist (TCS), Certified Occupancy Specialist (COS) or Blended Occupancy Specialist (BOS) courses to get more detail on student issues and to have a better opportunity to ask questions and engage in dialogue on the matter. It’s my experience that as the years go by property management only gets more complex and a lot of this is due to increased regulatory restriction and scrutiny. Stick with NCHM and we will do our best to lighten your load by keeping you updated on all regulatory changes in language and examples that makes sense. Nobody said that property management was easy, and if they did we all know differently, don’t we?