Agenda. Basic Tax Credit Calculations. Disclaimer: Follow your company s policies. Do not change your policy without your company s approval.

Transcription

1 Basic Tax Credit Calculations A Presentation for: AHMA-PSW Los Angeles Seminar May 2015 Presented by Sue Silva Disclaimer: Follow your company s policies. Do not change your policy without your company s approval. 2 Agenda Terms CTCAC and Change 4 Students What to Calculate Income Assets Under $5,000 Asset Form 3 1

2 Terms Calculation The method used to compute income and assets for an applicant or tenant CTCAC California Tax Credit Allocation Committee LIHTC Low Income Housing Tax Credits, another name for Tax Credits Review of Documents Use of tenant provided income/asset information after at least two attempts have been made at 3 rd party verification (3 rd party verification required for employment) 4 Terms continued Section 42 Of Tax Code, referring to Tax Credits also called LIHTC TCAC Tax Credit Allocation Committee TIC Tenant Income Certification Verification Form(s) used to verify income and assets 5 HUD Guide and Change 4 CTCAC does not follow the Change 4 guidelines on Verification Hierarchy. EIV cannot be used for Tax Credit files Tax Credit prefers third party verifications Verifications are good for 120 days from date received 6 2

3 Student Rule Exceptions In order for a household of full-time students to be considered eligible, they must meet one of the following criteria: 1. All members of the household are married and either file or are entitled to file a joint tax return 7 Student Rule Exceptions 2. The household consists of a single parent and his or her minor children, and both the parent and children are not a dependent of a third party. 3. At least one member of the household receives assistance under Title IV of the Social Security Act. (AFDC, TANF, CalWORKS, etc. Please note: SSA or SSI do not qualify) 8 Student Rule Exceptions 4. At least one member is enrolled in a job training program receiving assistance under the Work Investment Act (WIA) formerly known as the Job Training Partnership Act, or similar federal, state or local laws as defined by HUD The household consists of a tenant age of 18-24, who has exited the Foster Care system within the last 6 years. 9 3

4 Students IRS defines a student as an individual, who during each of 5 calendar months during the calendar year is a full-time student at an educational organization defined by IRC 170 (b)(1)(a)(ii) Months need not be consecutive Full-time or part-time is determined by the educational institution the student is attending 10 Students An educational organization is described in section 170(b)(1)(A)(ii) if its primary function is the presentation of formal instruction and it normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on. 11 Part-time Student CTCAC has no restrictions on the number of part-time students occupying an apartment as long as there is third party documentation from the school in the file, showing the tenant as part-time only. This should be updated regularly (each semester/quarter) as student status can change and cause a household to become ineligible. 12 4

5 Calculating Income The accurate determination of a household s income is a fundamental requirement of the IRC Section 42 Low-Income Housing Credit program. Not only is it necessary for identifying households most in need of housing, but the determination must be adequately documented in order for the owner to claim credits. IRS. 13 Calculating Income The income of every prospective occupant of the unit over the age of 18 must be verified. The gross income is used when calculating the total annual income. 14 Whose income is counted 15 5

6 Calculations - Employment Employment (Income Wages) at move-in Must show four calculations Verification from Employer (REQUIRED, No exceptions) Year to Date (YTD) calculation from VOE (Use days method) YTD from Paystubs (three months required) Average pay based on pay stubs Use the highest calculation on TIC (highlight one used) Required to obtain three months pay stubs 16 Calculations YTD Days Method Calculation the potential earnings off of the YTD number on both the VOE and most current pay-stub. YTD calculations are determined by taking the total number of days worked in the year and dividing by seven to get the actual number of weeks rounded to 2 decimal places. The YTD number is then divided by the number of weeks to get the average amount earned per week. The average amount earned per week is then multiplied by the number of weeks worked as stated on the VOE. 17 Calculations Day Method Example: Employer YTD shows $5000 from January 1- May 15, 2015, Calculate days days Jan + 28 days Feb + 31 days Mar + 30 days Apr + 15 days in May = 135 days days/7 days per week = 19.29, 3. $5000/19.29 weeks = $259.20/week x 52 weeks per year = $13,

7 Calculations YTD Sample YTD shows $4700 as of June 8, 2013, Calculate days (31 days Jan + 28 days Feb + 31 days Mar + 30 days Apr + 31 days May + 8 days June = 159 days/7 days per week = 22.71, $4700/22.71 weeks = $206.96/week x 52 weeks per year = $10, Calculations Sample Employment Employee Verification shows $10/hour average of 40 hrs per week = $400/wk $400 x 52 wks = $20,800 Employer YTD shows $6800 as of April 18, Calculate days (31 days Jan + 28 days Feb + 31 days Mar + 18 days Apr = 108 days/7 days per week = 15.43, $6800/15.43 weeks = $440.70/week x 52 weeks per year = $22, Pay stubs YTD shows $7280 as of April 26, Calculate the days which would be 116 days/7 = 16.57, $7280/16.57 = $439.35/week x 52 = $22, Pay stubs (required to have 3 months in file) Average of pay stubs = $429 (paid weekly) $429 x 52 wks = $22, Calculations Work Number In June of 2010, the outside employment verification company The Work Number stopped offering free verifications of employment for users of their program. CTCAC requires that for all initial applicants whose wage earnings can only be verified via The Work Number, the owner of the project may pass on the cost of the verification to the applicant. 21 7

8 Calculations Work Number This will ensure there is a VOE and pay-stubs for all wage earners at initial move-in, in the tenant files as requested by CTCAC. The requirement to pass the cost for the VOE is only at initial move-in year. At first year anniversary move-in date during the CTCAC mandatory 1st recertification, the owner or their management agent no longer have to supply a VOE from The Work Number, as long as 3 months of consecutive pay-stubs are included in the file. 22 Calculations Employment Hints Calculating Payments Annually Paid weekly = 52/year Paid bi-weekly (every other week) = 26/year Paid twice a month = 24/year Paid monthly = 12/year Use paystubs as clue or call for clarification 23 Calculations Employment Hints Days in Month Cheat Sheet January 31 days February 28 days (unless leap year, then 29) March 31 days April 30 days May 31 days June 30 days July 31 days August 31 days September 30 days October 31 days November 30 days December 31 days 24 8

9 Calculations Employment Hints Accumulative Days (2013) Cheat Sheet January 31 days Jan-Feb 59 days Jan-Mar 90 days Jan-Apr 120 days Jan-May 151 days Jan-Jun 181 days Jan-Jul 212 days Jan-Aug 243 days Jan-Sep 273 days Jan-Oct 304 days Jan-Nov 334 days Jan-Dec 365 days 25 Calculations Cash Payments In addition to the Verification of Employment (VOE) CTCAC requires 3 months of current consecutive pay-stubs at move-in. If the tenant is claiming that they do not receive pay-stubs as they are paid in cash, CTCAC requires: a copy of the 1040 filing for the tenant a third party statement from the employer on company letterhead, indicating the name of the tenant, the position title, and how much the employer pays the tenant in cash each week. 26 Calculations Cash Payments If the tenant is claiming that he/she does not file tax returns, CTCAC will require a copy of completed Form 4506-T indicating the tenant did not file taxes with the IRS in place of the 1040 Return. The statement from the employer will still be required in addition to the 4506-T. 27 9

10 Calculations Self Employment Per the CTCAC Compliance Manual, Part 710 CTCAC looks for the following information to verify self employment income: a. Previous Year s 1040 Tax Return and Schedule C OR: IRS Form 4506-T and one of the following: b. Profit and Loss Statement c. Statements from recurring clients For self-employed individuals who claim not to file tax returns for their business CTCAC will require management obtain a copy of Form 4506-T request for verification of tax filing with the IRS, to verify no-filing status, 28 Calculations Other Income Social Security and Supplemental Security Income CTCAC prefers 3rd Party Verification directly from the source. However, they will also accept the current year s Social Security Award letter in lieu of 3rd party documentation for regular Social Security and the most current verification letter for Supplemental Security income. Source CTCAC Compliance Manual Part Calculations Other Income Pensions, Annuity Payments, or any other form of recurring payment (excluding gifts) CTCAC will accept a statement/letter from the entity providing the payment in lieu of 3rd party documentation Source CTCAC Compliance Manual Part

11 Calculations Other Income Gifts - CTCAC will accept a signed and dated statement from the person providing the gift indicating the amount and frequency of the gift. An updated statement must be in file at each annual recertification. Source CTCAC Compliance Manual Part Calculations Other Income SSA/EDD/Payroll Debit Cards Issued by the source CTCAC will treat as Income Verify the Source Either 3 rd Party or the Current Award Letter HUD guidance differs slightly. It is ok to follow HUD guidance and count it as both income and an asset if there is HUD funding in the property Source CTCAC Basic Compliance Training Calculations Unusual Farm Labor Completed VOE showing lay-off period May use payroll printout instead of paystubs If receiving unemployment during lay-off period Calculate only the months expected to receive. Do not annualize. Source CTCAC Basic Compliance Training

12 Calculations Student Income Under special circumstances, HUD Handbook , allows only $480 of a full-time student s income to be counted toward income eligibility. To be eligible all of the following criteria must be met: Student cannot be listed as Head, Co-head, or Spouse of Household The students full-time status must be 3rd party verified with their school/college The students wages must also be 3rd party verified with their employer 34 Calculations Student Income Additionally, CTCAC requires that to be eligible under this rule, all the following criteria must also be met and owner must include in the tenant file evidence of such: Student must be claimed as a dependent OR: On student s tax filings he/she must show that he/she is a dependent CTCAC does not count any financial aid income for qualified students, except in the instances where Section 8 assistance is received. 35 Student Income Financial Aid Only counted if the household is receiving Section 8 Assistance Aid in excess of tuition (scholarships, grants, etc. but not loans) must be added to the households income unless one of two exceptions are met: 1. Living at home with his/her parents and claimed as a dependent on the HOH s tax return (must have a copy of the tax return in the file) 2. Over age 23 with a dependent child 36 12

13 Student Income GI Bill Post 9/11 GI Bill Tuition and Books are not counted as a source of Income Housing Allowance is counted as a source of income Source CTCAC Basic Compliance Training Calculations Other Income Sample Income Calculations Pension verification comes back and shows the following: Gross monthly pension = $ Medical deductions = $98.00 Net benefit = $ Calculations = Take Gross (always) $ x 12 months = $ Calculations Income Sample Income Calculations Social Security Award letter shows the following: Gross monthly award = $ Medical deductions = $ Net benefit = $ Calculations = $ x 12 months = $10, Note: If there is an overpayment being deducted from SSA, always take the net after the overpayment. This is one of the only exceptions to the use of gross income

14 CALCULATING INCOME FROM ASSETS 40 Calculations - Assets Assets Annual income includes amounts derived (during the 12-month period) from assets to which any member of the family has access. Assets are items of value that may be turned into cash. A savings account is a cash asset. The bank pays interest on the asset. The interest is the income from that asset. 41 Calculations - Assets Some residents have assets that are not earning interest. Money under a mattress is an asset: it is a thing of value that could be used to the benefit of the tenant, but under the mattress it is not producing income. Some belongings of value are not considered assets. Necessary personal property is not counted as an asset. Example: vehicles (although vehicles held as an investment may be, see the HUD 4350 guide for a detailed list)

15 Calculations - Assets Must determine the Cash Value of the asset. The cash value of an asset is the market value less reasonable expenses that would be incurred in selling or converting the asset to cash, such as the following: Penalties for premature withdrawal; Broker and legal fees; and Settlement costs for real estate transactions The cash value is the amount the family could actually receive in cash, if the family converted an asset to cash. 43 Calculations Bank Accounts Checking Account Verifications Review statements for additional income, accounts, and unusual deposits Must use six months average If bank verifies less than six months, use statements with clarification Savings and all other bank accounts Use current balance Remember to calculate interest 44 Calculations Assets Sample Checking Checking account statements show the following balances: Jan $250 Apr $210 Feb $240 May $342 Mar $300 Jun $170 Calculations = Add all above together and divide by six = $252 This is the value of the checking account, not the income from checking account

16 Calculations Assets Sample Savings Calculation Savings verification shows the following: Current balance $398 with an interest rate of 0.10% Calculation = $398 x 0.10% = $0.40 The income from assets is $ Calculations Assets Sample CD Calculation CD verification shows the following: Current balance $5000 with an interest rate of 0.25%. Penalty of $150 for early withdraw. Calculation = $5000 x 0.25% = $12.50 $ = $4850 (Cash value) Income from asset is $ Calculations - Assets Savings and all other bank accounts Use current balance Remember to calculate interest Assets that have costs involved to turn the asset into cash must have the costs deducted to determine the cash value. Note: If using the ending balance is a negative number, use the negative to calculate the six months. If the end number is negative, use 0 as cash value. Cannot have a negative cash value

17 Verifications - Negative Example of negative checking balances: Jan -$4.50 Feb -$9.00 Mar -$18.00 Apr $10.00 May $1.50 Jun -$7.00 Add all together, divide by 6 to get= -$4.50, Market value of checking account would be 0 49 Calculations Real Estate Foreclosure A foreclosure is essentially to be treated as a zero asset, as the tenant will not be receiving any monies from the foreclosure. However, until the final foreclosure documents are provided, the house is resold at auction, or the title transfers ownership to an outside party, a tenant has the option to pay off the remaining balance and reclaim the house. CTCAC will require copies of the final foreclosure documents to be in the file. Notices of Foreclosure will not be accepted as valid documentation. 50 Calculations Real Estate Short Sale A short sale is essentially to be treated as a zero asset, as the tenant will not generally be receiving any monies from the short sale. However, if there is a difference in the sale in favor of the tenant it must be 3 rd party verified. Must have short sale documents in file

18 Calculations Real Estate Reverse Mortgage Income from a reverse mortgage is not counted as income for determination of income eligibility. The income from a reverse mortgage is comparable to that of a loan that has to be paid back. However, the house is still considered an asset. To determine the value of the house, subtract the principal balance due on the reverse mortgage from the home s market value to determine its cash value. 52 Calculations Real Estate continued Example: Applicant owns a home that is currently for sale. Manager obtains a verification from the Realtor indicating that the home value is $400,000, has a mortgage owed of $300,000, closing costs would be approximately $10,000. Total estimated amount applicant would receive if sold would be $90,000. $90,00 is the net value of the asset. 53 Calculations Disposed Asset Asset disposed of in the last two years Document Asset will count for two year from date disposed if less than fair market Check bank statements for large amounts Only count disposed assets over $ total for the year. Example: Applicant cashed in $4000 Certificate of Deposit (CD) and gave cash to daughter. $4000 will be counted as an asset for two years from date disposed of

19 Calculations - Assets Assets If total assets are under $5000 use any actual interest towards annual income. If over $5000 use actual interest and impute 0.06%. Use higher of two calculations towards annual income. Subtract cost to turn asset to cash (any penalties) from total before calculating if over $ Calculations - Assets Under $5000 Assets Form If under total Household Assets are under $5000, manager may use under $5000 Asset form instead of third party verification (if other programs permit note: CalHFA, HCID- LA/RDA/CRA/HOME do not permit) Cannot use Under $5000 if total household assets exceed $5000 Follow your company policy 56 Questions? 19

20 Thank You. 20