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Guide for Completing Form 8823 - page 46 / 197

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46 / 197

*Income from Investments*

*Example 2: Tenant Disposed of Assets for Less Than Fair Market Value

During April of 2009, Jackson Jones gave each of his three children $500. In September of 2009, he applied for low-income housing. Because the total ($1,500) exceeds the $1,000 limit, the gifts are treated as assets disposed of for less than fair market value and are included as income on his application.

Note: The gifts should also be reported as income for the 2010 income recertification if the low-income unit is in a mixed-use building. See chapter 14 for details.*

Do not include assets disposed of for less than fair market value as the result of a foreclosure, bankruptcy, or divorce or separation agreement if the applicant or tenant receives valuable consideration not measurable in dollars.

Assets must be verified, the income generated from assets must be determined, and the income included in the computation of the household’s income.

  • 1.

    If the total cash value of a household’s assets is more than $5,000, imputed income must be calculated using the current HUD passbook rate27 and the greater of the actual income or imputed income must be included in the household’s income. Refer to the HUD Handbook 4350.3, paragraph 5-7F, *for the passbook rate, which is currently set at 2%.*

  • 2.

    If the total cash value of the household’s assets is $5,000 or less, the actual income the tenant receives from assets is the amount included in annual income as income from assets. An owner may satisfy asset verification requirements by annually obtaining a signed, sworn statement from the tenant certifying that the tenant’s net family assets are $5,000 or less and disclosing the tenant’s annual income from net assets. Owners, however, may not rely on a low-income tenant’s signed, sworn statement of income

from assets if a reasonable person28 in the owner’s position would conclude that the tenant’s income is higher than the amount presented by the tenant. In such cases, the owner must obtain other documentation of the low-income tenant’s annual income from assets to satisfy documentation requirements.29

*Stocks, bonds, Treasury bills, certificates of deposit, mutual funds, and money market accounts are assets. Interest or dividends earned are included as income even when the earnings are reinvested.

27 Projects receiving a tax credit allocation for rehabilitation of USDA Rural Development properties typically use the USDA Rural Development passbook rate if imputed interest must be included in the income computation.

28 The “reasonable person” concept is part of the definition of due diligence. Due diligence is defined (Black’s Law Dictionary [6th ed. 1990]) as: “Such measure of prudence, activity, or assiduity, as is properly to be expected from, and ordinarily exercised by, a reasonable and prudent person under the particular circumstances; not measured by any absolute standard, but depending upon the relative facts of the special case.” In short, the due diligence standard is a judicially created test to determine the adequacy of the efforts exerted throughout all phases of any activity.

29

See Rev. Proc. 94-65, 1994-2 C.B. 798.

4-15

Revised October 2009

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